A few months back, I was reading an analysis by one business columnist who argued that in the upcoming recession, which at the time looked about a year away, real estate prices would be little impacted.
Hah! Despite his numbers and the curves on his charts, I thought he was badly mistaken. I felt – and still do – that he was leaving an important factor out of his calculations. So much of what I saw in the 1990 real estate collapse was a consequence of households where one of the two working adults had been laid off. With housing prices as high as they were, one income was dedicated solely for the mortgage payment while the other was left to cover the remaining living expenses. Nonexistent savings weren’t going to be part of that calculus.
An old rule-of-thumb was that the purchase price of the home should be no more than 2½ times the annual household income Looking around here, I’ve been puzzled that anyone can afford a home at all, especially considering the declining wages we’ve been seeing across the board or the difficulty of younger workers trying to land full-time jobs with benefits.
Quite simply, we couldn’t afford to buy our own house if we were in the market again. And many of the people we talk to admit the same thing, nodding their heads in sad agreement.
As for single-adult households? The odds are even worse.
Flash to the present, with its record layoffs already. History sometimes does repeat itself.
In the past week, two stories have pushed the developing Covid-19 situation along these lines.
One noted that real estate transactions have essentially gone dormant. Nobody’s out looking to buy and move up, forget an open house, and sellers are reluctant to have strangers traipsing through their dwelling and touching their stuff. We’re all more or less hunkered down.
And now we’re hearing dire warnings that the mortgage industry is on the verge of collapse or meltdown as homeowners (and presumably many businesses as well) are already falling behind in their payments.
Let’s see how the stock market reacts when it wakes up to these turns.
There’s a lot more to the economy than Wall Street, for sure.
By the way, the U.S. is now the epicenter of the pandemic, and the numbers are just beginning to soar. Nate Silver, the statistics guru at FiveThirtyEight, reports that the cases and fatalities are rising faster in the Trump-leaning red states than in the blue states, where more of the testing has occurred. Within a month, he says, the per capital rate of new coronavirus cases in Trump country should outstrip those in the rest of the nation.
Let’s see what that does to public discourse and opinion.
11 thoughts on “Now for the real estate hit”
Back in the day, I worked for two builders and sold real estate in the Midwest. There are a lot of jobs I wouldn’t want to be doing today, and real estate is definitely one of them. I think a screeching halt would be a good term to apply to the industry right now. Stay safe.
Public discourse? What does it do to the election?
Assuming the US death rate from COVID-19 is 1.5-2%, which seems to be where a lot of experts expect it to wind up. America has the most cases in the world, which should mean the most deaths
If those deaths are dis-proportionally in States that supported Donald Trump in 2016 then you might expect to see an impact on the results in November. And if the death toll rises above two per cent that might be enough to allow the Democrat to squeak out a win.
There are more Democrats than Republicans, though with the Electoral College location of those voters is important. In 2016 many who voted Obama in 2012 didn’t vote, and Trump capitalized on that. If a disproportionate number of his base succumbs to COVID-19 his campaign could be in trouble.
Then again, the USA has a long tradition of dead people voting, so maybe it won’t make a difference.
As they used to say in broadcasting, please stand by. As well as, please stay tuned.
The economy, of course, has long been the bellwether of reelection. We’ll see how that works this time.
Or, to apply another cliche, things are really getting wild.
This year politicians may be given a pass on a poor economy. Tough to blame them for a virus – though some of the responses have been questionable in every country.
Yeah, we’re on totally unfamiliar ground here. That’s part of the fascination as well as the dread.
Thank you so much for this article! Very informative
I would have to agree almost entirely here. Market prices do not reflect the current economic outlook and the damages look to be far from over. My concern is when all of the forbearance comes due and people are required to pay up. Than what? Massive defaults right? Economic downturn and the spiral begins until we claw our way back out of the hole we are in?
Ain’t gonna be purty, you and I know that much. (Sigh.)
Thanks for the informative post..
Thanks! More info as I learn. It’s like a choose your own adventure book.