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.