If AI replaces white-collar workers, what happens when they can’t pay their mortgages?
It could mean an uptick in delinquencies and a double-digit drop in home values, according to a recent thought exercise published by Citrini Research, an independent investment research firm based in New York. The firm came to those conclusions in a memo — written from the perspective of 2028 — that highlights the potential dire economic impact of white-collar workers being replaced by AI. The article spooked markets last week, exposing unease from investors about the future effects of AI.
“The sole intent of this piece is modeling a scenario that’s been relatively underexplored,” the company wrote on its website.
Within that scenario is the idea that if white-collar workers lose their jobs, their houses might follow.
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Workers Might Move from Owners to Renters
An AI-induced housing crisis would be different from the one experienced in 2008. At that time, subprime borrowers — those with small down payments or shaky finances — were the ones at risk of losing their homes. However, if AI replaces white-collar workers, it will be borrowers with prime mortgages, so-called “good mortgages,” who will be in jeopardy.
The first jobs lost to AI would probably be entry-level positions, people who are “spreadsheet jockeys,” according to Greg Willett, chief economist for LeaseLock, an insurance technology provider for the rental market.
“You’re likely to end up living with mom and dad for a while,” Willett says of the younger workers who fill these positions.
Assuming AI did begin to affect other white-collar workers, he thinks it would take some time before the housing market is impacted. Most people will let other bills, such as those for credit cards and auto loans, lapse before missing mortgage payments.
White-collar workers who lose their jobs to AI may find there is no comparable work available for them. They may have to pivot to other industries and take a pay cut in the process.
“If people can’t afford to keep their homes, they will obviously need to live somewhere,” says Nelya Calev, who has been a real estate broker in Bellevue, Washington, since 2007.
Rental housing might be the answer for these workers, but a mass exodus of homeowners could mean a glut of homes and falling home prices. It could also put strain on a rental market that is already unaffordable to half of U.S. renters, according to a 2024 study by the Joint Center for Housing Studies at Harvard University.
Recent Layoffs Spur Concerns
The impact of AI-related job loss is only hypothetical right now, but some say there are warning signs on the horizon.
Companies such as Pinterest and Dow have recently announced layoffs as a result of AI. More recently, payment company Block announced a 40% reduction in its staffing and said the move was a result of “intelligence tools.” Meanwhile, the CEO of AI for Microsoft said in an interview with Financial Times that he thinks most white-collar work tasks will be “fully automated by AI” within 12 to 18 months.
Many people aren’t convinced, though.
“I just don’t believe it’s going to happen,” Calev says. “I think AI is just a scapegoat.”
She thinks companies are simply looking to slim down their workforces and eliminate expenses. Saying AI is responsible makes it look like a smart move to Wall Street, whereas layoffs could otherwise be a red flag for investors.
“Most companies are trying to clear revenue to invest in AI,” says Michael Merritt, senior vice president and head of default and customer care at BOK Financial. Citing a study from Harvard Business Review, he thinks recent layoffs have been preemptive rather than a result of AI actually taking over white-collar roles.
Housing Prices May Drop
Still, the recent spate of layoffs is enough to make white-collar workers nervous. If these professionals were to lose their jobs in large numbers, the effect on housing could be pronounced.
“The housing impact will be felt first and most in cities with high concentrations of tech employment,” according to Jeffrey Taylor, founder and managing director at Mphasis Digital Risk, in an email. “If it happens, home prices in these markets could fall materially, which could adversely impact existing homeowners.”
Falling prices could prove beneficial to workers not impacted by AI, though. People previously priced out of homeownership may find buying is affordable for them.
There is also the possibility that the opposite happens. “People don’t know what happens next, so they freeze in place,” Willett says. That can result in less mobility and a tighter housing inventory as workers bide their time to see how things play out at their jobs.
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Potential Changes to Loan Requirements
If white-collar jobs do become susceptible to future layoffs, Calev thinks it’s possible lenders might revise their guidelines for applicants in these occupations. For instance, they may require larger down payments.
However, “An unemployment spike isn’t likely to change how lenders calculate debt-to-income ratios to approve loans for homebuyers,” Taylor says. He adds that lenders are often willing to include gig work or consulting income when approving loans.
Foreclosures aren’t necessarily in the future for white-collar workers, either. Merritt points to how lenders pivoted during the 2008 financial crisis and 2020 COVID-19 pandemic as examples of how the industry helps homeowners bridge uncertain times or make a “graceful exit” from their home if necessary.
“We have more tools in our tool belt today,” Merritt says.
Of course, if and how AI affects jobs and the housing market is all speculation right now. Some people say there may be short-term disruption but long-term benefits as AI potentially spurs the creation of new, higher-paying occupations.
“It’s easy to see the potential downsides,” Willett says, “but what we’re seeing is that AI is making us more productive.”
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AI Is Coming for White-Collar Jobs. What Does That Mean for Your Mortgage? originally appeared on usnews.com