Were you preparing your real estate for sale before corona hijacked your plans? Or think you may need to sell your property in the next 5 years? As COVID-19 continues to deconstruct the world as we know it, many are looking for answers. Truth is, many of us aren’t even clear on our questions. Regardless of both, most are curious about our current economic conditions. And, many are asking themselves, “How will the shut down effect the future of the real estate market?“.
Let me start off by saying that I am not a doom and gloom type of person. I believe that change is good. It often brings more opportunity than hardship…but only if we are willing to look for the silver lining. It is because of this belief that one of our core values at ROOST™ Real Estate is “Positive Attitude”. So, please don’t take the information I’m about to share the wrong way. My goal is to provide facts regarding our current economy that I believe will effect the future of the real estate market.
The real estate market has been on an upward trajectory since late 2009. This represents over 10 years of continuous growth. And one of the longest periods of uninterrupted real estate growth in history! If the past has taught us anything, it is that history repeats itself. This means we are due [actually overdue] for a market adjustment or “correction”.
What does this mean for you? How much of a correction are we talking about? More on that in a minute, but let’s agree that the market has been on a good run and all good runs eventually come to an end.
COVID-19 has undoubtedly had a negative impact on our overall economy. One indicator of this fact is the unemployment rate. While this indicator can often be difficult to pin down, especially as the number of claims is rising weekly, here is what we know…as I write this post the current unemployment rate is north of 20%.
But wait, there’s more. The CARES payroll protection program for small business has also been doling out billions of dollars in the form of loans. These loans can become grants [meaning they become forgivable, aka free money] to the business owners if they follow certain rules. The rules state that the majority of these dollars must be allocated towards payroll expenses [75% percent] and employers must keep employees on full pay for the 8 week period following the issuance of funds. This means the government is paying small businesses to keep people employed.
But what happens after those 8 weeks are over? To which I say, hard telling not knowing! Many people assume that the unemployment rate will return to normal levels once businesses reopen, but if it’s already over 20% what will it look like when the CARES PPP 8 week period ends? And what is normal anymore? What about all the businesses that will not be reopening? Conservative estimates suggest that approximately 30% of the businesses that are temporarily shut down will not reopen. Goldman Sachs economists are forecasting that unemployment levels could be as high as 29%, which is much higher than the 17.2% peak we experienced during the financial crisis of 2007-09.
In March, we officially entered a recession. I know it’s hard to believe. Especially, if you watch the news where there seems to be no correlation between the markets and reality at the moment. It seems that while the world is on pause and people are sitting on the edge of their seats, a single piece of news can send the stock market soaring up one day or create a selling frenzy the next. Regardless of whether or not that news qualifies as market moving, we need to stay calm and keep the bigger picture in focus. Many experts and some of the wealthiest individuals in the world suggest that a recession is our best case scenario.
I realize that no one has a crystal ball or really knows what will transpire in the future of the real estate market. Therefore, it is important that we all take time to investigate the facts for ourselves. In doing so, I think you will agree that it doesn’t look good. Here are some hard truths we need to consider…
- Our National Debt is over $24 Trillion and Counting [this is more than double what it was in 2008]
- Our unemployment rate is projected to be over 20% [by conservative estimates] when the dust settles. It was only 17.2% at the peak of the last recession.
- Manufacturing and production has dramatically slowed down, and many of these facilities will not reopen.
- The Port of Los Angeles [our country’s largest shipping container port] has less than half the containers coming in and this doesn’t reflect the impact of the last 30 days due to the lag effect in shipped goods.
- New York State manufacturing is down over 50 points from the previous month. This is the lowest level of output ever recorded in the state. Other states are experiencing similar outcomes.
- Interest rates are at almost 0% [this is a good when you are buying a home but bad for the economy overall]
Lastly, we are printing money “at will” right now. I’m not even going to try and explain this, but if you’re interested in scaring yourself half to death you can read about it here on bigger pockets.
The Bottom Line
Although we may see a small uptick as COVID-19 restrictions lift due to limited supply and pent up buyer demand, in light of everything I’ve shared above, I believe we are currently seeing the top of the market. This doesn’t mean that you need to immediately sell your property. And it also doesn’t mean that you should wait to buy. What it does mean is that you should be looking at your current situation using educated guidance instead of panic driven reactions.
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