All –– a quick post on COVID and its impact on our market to share with clients:
- Yes, the market is being impacted, but the market has not stopped by any stretch. Activity has diminished, but has not ceased.
- The rate at which it is being impacted varies widely by type of home, by price band, and by the time period examined –– so any blanket statement is likely not reflective of all market segments.
- Expect a decrease in velocity into the next several weeks, especially if additional movement restrictions are put in place –– but this is likely not reflective of the velocity once restrictions are lifted.
- We are modeling a 30-40% decrease in velocity into the spring, but once some form of confidence is restored, look for an immediate rebound.
- The local market is still largely undersupplied and CV has not helped the supply side whatsoever. As a matter of fact, CV has slowed new home construction supply and this will be felt well into 2021.
- Yes, CV has damaged the buyer pool, (unemployment, loss of cash assets) but even if the buyer pool is cut by 25-40%, inventory levels will only return to historically ‘normal’ levels.
- The impact of stimulus measures is also largely unknown –– but will likely have a positive impact on all things related to real estate.
In addition to the quantifiable, numerous behavioral shifts will likely occur:
- CV will also likely an impact on behavior related to density preference. In other words, apartment dwellers may elect to exit the apartment lifestyle more quickly due to an inability to control their environment –– which will put more pressure on single-family homes.
- CV may create a higher likelihood of investment in one’s own home versus exotic travel. Home improvements, pool installations, etc., could become more prevalent once cash reserves are replenished.
The economic damage is still unknown –– both its depth and its permanence. Projections vary widely and will also vary regionally (i.e each market has differing exposure to tourism/travel) and thus the impact locally will likely differ from the impact in Orlando, Florida.
The final version and implementation of any stimulus packages is also unknown. So not only will the form of stimulus matter, how effectively it is implemented will dramatically impact the trajectory of the economy and the rate of recovery.
Movement restrictions are likely not finished and if complete lockdowns occur, then all of the market activity will likely cease until they are lifted.
2008 vs 2020
Short-term unemployment will likely exceed 2008-2010 levels (it likely already has.)
That said, the real estate impact in 2008 was both a function of an oversupply of housing AND an oversupply credit-challenged buyers. When the market adjusted, the impact was far longer lasting due to the notable oversupply and the shrunken buyer pool responsible for absorbing it.
2020’s market conditions before CV were driven by a 3.5M undersupply of newly constructed homes, low rates, and a far more qualified buyer pool. What was an inventory ‘over-hang’ in 2008, is an inventory ‘under-hang’ currently.
No crystal ball is accurate, but I wouldn’t be afraid of purchasing, especially if the need is legitimate and your finances are on solid footing. The underlying conditions pre-CV have not changed.
The final economic damage assessment is nowhere near complete and will likely not be for some time, but the underlying conditions entering into this shock were far healthier than when we entered into the 2008 financial crisis.
Each year at One South, we sit down as a group and talk about the prior year and what we expect in the coming year (or more.)
For the last several years, we have basically been looking at each year as if it will be more of the same. But as we look out over the horizon of what is to come, we can feel the market shifting. The questions are:
- By how much?
Below is a copy of the presentation.