Abstract – Circulated during the initial weeks of the COVID-19 outbreak. This letter touches on the reactions of the real estate market and answers the worried questions directed our way.
Hi Alex, what are your current thoughts on the real estate market?
Simple answer, stay put for now. Currently there’s not enough data to make an informed decision. Transactions are still occurring, albeit very limited and the process is significantly challenged & delayed by the growing “Stay in Place” order. With once in a lifetime low interest rates and low inventories the future still looks strong for real estate.
We will see the rock bottom pricing we saw in ’08-09’?
I don’t think so. The recession of ’08-’09 was a perfect storm of culminating factors. Primarily due to overly aggressive lending to create additional Mortgage Backed Securities (See Mortgage Backed Securities). Legislation has since been enacted to prevent this (See Dodd-Frank). For a slump in price and sell off to occur on a mass scale, we’ll need to see a prolonged period of pain. In ’08-’09 it took about a year. Currently prices have not been affected. We’ve been in this for less than a month. Many state and local governments were quick to put anti-eviction legislation in place. Many lenders are already offering temporary relief (See Forbearance). Continued economic stalling and large layoffs are the biggest risk to the current market. Current focus is on the proposed stimulus plan.
So when will we know?
We need two things to happen. First – we need a firm grasp on the COVID-19 outbreak. Including a confident forecast as to it’s overall health impact. Second – The answer to #1 will drive the financial markets up or down. If down, you’ll see opportunities in real estate. If up, as we hope, for the health and well being of everyone, the residential real estate market will remain unscathed.
I also think we’ll see many who pulled out of the financial markets invest their funds in real estate when the timing is right. For peace of mind and stability. No one enjoyed watching their portfolio rise up and down like a roller coaster over the last 30 days. While losing all gains realized over the last
three years. Rental income remains stable during recessionary periods. Something Baby Boomers are going to be focused on as they continue to retire and utilize their investment income. Utility value, tangibility & tax benefits are very appealing. Especially when safety and security are of primary concern.
What about the commercial real estate market?
Glad you asked. Grab a lawn chair and some popcorn. That segment of the market could get interesting…
Fee free to share. we’ve been fielding a number of inquiries asking the above. So I thought I’d make this public. I’ve also seen a few opportunists promoting a fear based narrative for personal gain. I hope these same people are the first to run out of toilet paper and cleaning supplies.
