Recession, Crash or Steady as She goes? Part 2 It’s Happening
I wrote an article on LinkedIn June 11, 2019, talking about where I thought the overall economy was going. Here are a few excerpts from that article;
“…there are about 8000 points of “fluff” in the stock market from quantitative easing.”
“… I believe Mr. Trump will hold off a downturn in the economy until after he is re-elected.”
“If the recession doesn’t clearly start in the first quarter of 2020, I think it will certainly begin the first quarter of 2021.”
“…if the market crashed, the value of the dollar declines dramatically (as well as other world currencies), what will the government do to secure the dollar? Stick with oil? Gold? Crypto?”
Today is April 1, 2020, since March 16, 2020, most of the country (and world) has been shutting down due to COVID-19 pandemic. Turns out that was the grain of sand to disrupt everything. We quickly saw the 8000 points in the DJIA disappear (as I type this at 1215 EST the DJIA is at 21201.9 down 715.78. I believe the DJIA will stay around 20,000 until the first quarter of next year.
I still believe Mr. Trump will hold off the recession until next year. We are obviously going to take a huge hit due to COVID-19, but we will have a quick faux recovery as well.
Next year when we are really in the recession, the economist of the world will look back and say it started in March of 2020.
The last quote is still in the future, but you have already seen new articles about going to the gold standard and using the digital dollar.
So where are we now? Unemployment claims at a historical high. Mortgage and rent payments can be deferred for 90 days. People can get on unemployment and receive a stimulus check (that will likely be wasted at Home Depot or Lowes but that’s a different article).
A mortgage or rent deferral does not mean forgiveness. What it does mean is that if you do not make any payments during those 90 days or make partial payments, you will not get a late fee or mark on your credit report. The bigger thing it means for your mortgage is that on month four you are expected to pay in full everything you owe and that payment. Could you make four payments at once before this pandemic? What if you made partial payments? You still have to make your regular payment and any balance you have. When talking with your mortgage company make sure you know what you’re getting into. Renters talk to your landlord to see if they will reduce your rent during this COVID-19 self-isolation period if you need to. You will have to work out arrangements to pay him back.
Most people who defer will not be able to pay, then foreclosure actions will start. By the end of August, you will see people being put out of their homes from all of this. A large majority will work something out with the lender that delays any foreclosure action by another 60 to 90 days. That puts us right at election time. Do you think the President is going to let the fallout of COVID-19 keep him from winning? Not likely, something will be done to delay any foreclosures until the first of the year. Once the Christmas shopping season and returns end the bottom will drop out soon after. I am not sure what the next grain of sand is to make it happen is but six weeks ago you didn’t know what COVID-19 was. By March 2021 we will be in a full recession.
Good news real estate brokers, agents, and investors we have a couple of windows of opportunity where there will be a dip in the market for buying opportunities. Third-quarter 2020 and a ramp-up starting first quarter 2021 and lasting 2 to 3 years.
Commercial real estate investments will be stagnant on a macro level for a couple of years like it was after the 2008/2009 recession.
2020 pricing has hit its peak. In some areas, we have even seen a slight drop in pricing. This pandemic decline will lower home prices a little bit this year, 5% to 10%. Commercial I think will stay level to 5% lower because owners will hold.
Looking forward from 2021 to 2023 home prices will bottom out according to each area of the country. Here in Greater Cincinnati/ NKY we are lucky to have a huge Amazon project going on that continues to bring jobs and people as well as the ongoing stability of companies like P&G and Kroger, so I only expect another 5% to 10% drop in housing values. Nationally it looks a lot like 08/09.
Although this coming recession is not due to a housing bubble, I would argue it’s a large contributor. People have been overbuying for the last several years. They are going to be put in a pinch in a few months and the housing bubble will burst. This was going to happen with or without COVID-19 because lenders and realtors did not advise people to buy right. They said buy all the house you can for the payment you can afford (according to the lender).
After this recession cycle is over (or maybe during) the NAR and NAMB need to really examine what fiduciary means. Let's learn from this and do a better job going forward. We as an industry should be teaching our clients to buy right, collaborate with experts and fulfill our fiduciary duty to the clients.
As always, there is a ton of opportunity in adversity. Go find yours or get lost in the crowd.