As our lives, our businesses, and the world we live in change day by day, we’re all left wondering how long this will last. How long will we feel the effects of the coronavirus? How deep will the impact go? The human toll may forever change families, but the economic impact will rebound with a cycle of downturn followed by economic expansion like we’ve seen play out in the U.S. economy many times over.
Here’s a look at what leading experts and current research indicate about the economic impact we’ll likely see as a result of the coronavirus. It starts with a forecast of U.S. Gross Domestic Product (GDP).
“Gross Domestic Product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it?functions as a comprehensive scorecard of the country’s economic health.”
When looking at GDP (the measure of our country’s economic health), a survey of three leading financial institutions shows a projected?sharp decline?followed by a?steep rebound?in the second half of this year:A recent study from?John Burns Consulting?also notes that past pandemics have also created V-Shaped Economic Recoveries like the ones noted above, and they had minimal impact on housing prices. This certainly gives hope and optimism for what is to come as the crisis passes.
With this historical analysis in mind, many business owners are also optimistic for a bright economic return. A recent?PricewaterhouseCoopers?survey shows this confidence, noting 66% of surveyed business owners feel their companies will return to normal business rhythms within a month of the pandemic passing, and 90% feel they should be back to normal operation 1 to 3 months after:From expert financial institutions to business leaders across the country, we can clearly see that the anticipation of a quick return to normal once the current crisis subsides is not too far away. In essence, this won’t last forever, and we will get back to growth-mode. We’ve got this.
Lives and businesses are being impacted by the coronavirus, but experts do see a light at the end of the tunnel. As the economy slows down due to the health crisis, we can take guidance and advice from experts that this too will pass.
There’s a lot of anxiety right now regarding the coronavirus pandemic. The health situation must be addressed quickly, and many are concerned about the impact on the economy as well.
Amidst all this anxiety, anyone with a megaphone – from the mainstream media to a lone blogger – has realized that bad news sells. Unfortunately, we will continue to see a rash of horrifying headlines over the next few months. Let’s make sure we aren’t paralyzed by a headline before we get the full story.
When it comes to the health issue, you should look to the?Centers for Disease Control and Prevention?(CDC) or the?World Health Organization?(WHO) for the most reliable information.
Finding reliable resources with information on the economic impact of the virus is more difficult. For this reason, it’s important to shed some light on the situation. There are already alarmist headlines starting to appear. Here are two such examples surfacing this week.
1.?Goldman Sachs?Forecasts the Largest Drop in GDP in Almost 100 Years
It sounds like Armageddon. Though the headline is true, it doesn’t reflect the full essence of the?Goldman Sachs?forecast. The projection is actually that we’ll have a tough first half of the year, but the economy will bounce back nicely in the second half; GDP will be up 12% in the third quarter and up another 10% in the fourth.
This aligns with?research?from?John Burns Consulting?involving pandemics, the economy, and home values. They concluded:
“Historical analysis showed us that pandemics are usually V-shaped (sharp recessions that recover quickly enough to provide little damage to home prices), and some very cutting-edge search engine analysis by our Information Management team showed the current slowdown is playing out similarly thus far.”
The economy will suffer for the next few months, but then it will recover. That’s certainly not Armageddon.
2. Fed President Predicts 30% Unemployment!
That?statement?was made by James Bullard, President?of the?Federal Reserve Bank of St. Louis. What Bullard actually said was it “could” reach 30%. But let’s look at what else he said in the same?Bloomberg?News?interview:
“This is a planned, organized partial shutdown of the U.S. economy in the second quarter,”?Bullard said. “The overall goal is to keep everyone, households and businesses, whole”?with government support.
According to?Bloomberg, he also went on to say:
“I would see the third quarter as a transitional quarter” with the fourth quarter and first quarter next year as?“quite robust”?as Americans make up for lost spending.?“Those quarters might be boom quarters,”?he said.
Again, Bullard agrees we will have a tough first half and rebound quickly.
There’s a lot of misinformation out there. If you want the best advice on what’s happening in the current housing market, contact your local real estate agent.
In times of uncertainty, one of the best things we can do to ease our fears is to educate ourselves with research, facts, and data. Digging into past experiences by reviewing historical trends and understanding the peaks and valleys of what’s come before us is one of the many ways we can confidently evaluate any situation. With concerns of a global recession on everyone’s minds today, it’s important to take an objective look at what has transpired over the years and how the housing market has successfully weathered these storms.
1. The Market Today Is Vastly Different from 2008
We all remember in 2008.?This is not 2008. Today’s market conditions are far from the time when housing was a key factor that triggered a recession. From easy-to-access mortgages to skyrocketing home price appreciation, a surplus of inventory, excessive equity-tapping, and more – we’re not where we were 12 years ago. None of those factors are in play today. Rest assured,?housing is not a catalyst?that could spiral us back to that time or place.
According to Danielle Hale,?Chief Economist?at?Realtor.com, if there is a recession:
“It will be different than the Great Recession. Things unraveled pretty quickly, and then the recovery was pretty slow. I would expect this to be milder. There’s no dysfunction in the banking system, we don’t have many households who are overleveraged with their mortgage payments and are potentially in trouble.”
The?Goldman Sachs GDP Forecast?released this week indicates that although there is no growth anticipated immediately, gains are forecasted heading into the second half of this year and getting even stronger in early 2021.?Both of these expert sources indicate this is a momentary event in time, not a collapse of the financial industry. It is a drop that will rebound, a stark difference to the crash of 2008 that failed to get back to a sense of normal for almost four years. Although it poses plenty of near-term financial challenges, a potential recession this year is not a repeat of the 2008 long-term housing market crash we remember all too well.
2. A Recession Does Not Equal a Housing Crisis
Next, take a look at the?past five recessions?in U.S. history. Home values actually appreciated in three of them. It is true that they sank by almost 20% during the last recession, but as we’ve identified above, 2008 presented different circumstances. In the four previous recessions, home values depreciated only once (by less than 2%). In the other three, residential real estate values increased by 3.5%, 6.1%, and 6.6% (see below):
3. We Can Be Confident About What We Know
Concerns about the global impact COVID-19 will have on the economy are real. And they’re scary, as the health and wellness of our friends, families, and loved ones are high on everyone’s emotional radar.
“Several economists made clear that the extent of the economic wreckage will depend on factors such as how long the virus lasts, whether governments will loosen fiscal policy enough and can markets avoid freezing up.”
That said, we can be confident that, while we don’t know the exact impact the virus will have on the housing market, we do know that?housing isn’t the driver.
The reasons we move – marriage, children, job changes, retirement, etc. – are steadfast parts of life. As noted in a recent piece in the?New York Times, “Everyone needs someplace to live.”?That won’t change.
Concerns about a recession are real, but housing isn’t the driver. If you have questions about what it means for your family’s home buying or selling plans, reach out to one of our associates who would be glad to discuss and consult.
Buying your first home can seem overwhelming. Thankfully, there’s a lot of great information out there to help you feel more confident as you learn about the process. For those in younger generations who aspire to buy, here are three things to consider sooner rather than later in your journey:
1. Understand What it Takes to Purchase a Home
Overall,?Millennials?make up the largest group of homebuyers in today’s real estate market, and Gen Z is not too far behind. A recent?study?shared by?Freddie Mac?shows, however, that Generation Z isn’t as confident in the homebuying process as Millennials. The best thing potential young buyers can do is understand what it takes to buy a home. Learn as much as you can about the?mortgage process,?down payment?options, and the overall?steps?to take along the way.?
2. Realize Your Opportunity to Build Wealth?
Homeownership allows you the chance to put a small portion of the home’s value down when you buy, and then watch your appreciation grow on the full value of the home – not just on the down payment. It’s one of the?best investments?you can make, and a form of?‘forced savings’?working in your favor over time. The added bonus? You get to live there, too.
3. Find Someone You Trust to Help You Through the Process?
Having someone you trust to guide you through this process is invaluable. Finding a local real estate?expert?to help you navigate through the transaction and feel more confident as you make important decisions could be the best choice you make.
For Millennials and Gen Z’ers thinking about buying, today’s historically low?interest rates?combined with the outlook for future home appreciation is a big win. This means whatever you buy today, you’ll be bragging about 10 years from now. You can feel confident about that!
If you’re ready, buying your first home sooner rather than later is one of the best decisions you can make. But there are many things to consider before taking that step, so it is critically important to educate yourself properly and find someone who can help you confidently navigate through the full journey.
Spring is right around the corner, so flowers are starting to bloom, and many potential homebuyers are getting ready to step into the market. If you’re thinking of buying this season, here’s how mortgage interest rates are working in your favor.
“If you’re in the market to buy a home, today’s average mortgage rates are something to celebrate compared to almost any year since 1971…
Mortgage rates change frequently. Over the last 45 years, they have ranged from a high of 18.63% (1981) to a low of 3.31% (2012). While it’s not likely that the average 30-year fixed mortgage rate will return to its record low, the current average rate of 3.45% is pretty close — all to your advantage.”
To put this in perspective, the following chart from the same article shows how average mortgage rates by decade have impacted the approximate monthly payment of a $200,000 home over time:Clearly, when rates are low –?like they are today?– qualified buyers can benefit significantly over time.
Keep in mind, if interest rates go up, this can push many potential homebuyers out of the market. The?National Association of Home Builders?(NAHB)?notes:
“Prospective home buyers are also adversely affected when interest rates rise. NAHB’s priced-out estimates show that, depending on the starting rate, a quarter-point increase in the rate of 3.75% on a 30-year fixed rate mortgage can price over 1.3 million U.S. households out of the market for the median-priced new home.”
You certainly don’t want to be priced out of the market this year, and waiting may mean a significant change in your potential mortgage payment should rates start to rise. If your financial situation allows, now may be a great time to lock in at a low mortgage rate to benefit greatly over the lifetime of your loan.
After over a year of moderating home prices, it appears home value appreciation is about to reaccelerate. Skylar Olsen,?Director of Economic Research?at?Zillow, explained in a?recent article:
?“A year ago, a combination of a government shutdown, stock market slump and mortgage rate spike caused a long-anticipated inventory rise. That supposed boom turned out to be a short-lived mirage as buyers came back into the market and more than erased the inventory gains. As a natural reaction, the recent slowdown in home values looks like it’s set to reverse back.”
CoreLogic, in their?January 2020 Market Pulse Report, agrees with Olsen, projecting home value appreciation in all fifty states this year. Here’s the breakdown:
- 21 states appreciating 5% or more
- 26 states appreciating between 3-5%
- Only 3 states appreciating less than 3%
Many believe when real estate values are increasing, owning a home becomes less affordable. That misconception is not necessarily true.
In most cases, homes are purchased with a mortgage. The current mortgage rate is a major component of the affordability equation. Mortgage rates have fallen by almost a full percentage point since this time last year.
Another major piece of the equation is a buyer’s income. The median family income has risen by 5% over the last year, contributing to the affordability factor.
Black Knight, in their latest?Mortgage Monitor, addressed this exact issue:
?“Despite the average home price increasing by nearly $13,000 from just over a year ago, the monthly mortgage payment required to buy that same home has actually dropped by 10% over that same span due to falling interest rates…
Put another way, prospective homebuyers can now purchase a $48K more expensive home than a year ago while still paying the same in principal and interest, a 16% increase in buying power.”
If you’re thinking about purchasing a home, realize that homes are still affordable even though prices are increasing. As the?Black Knight?report concluded:
“Even with home price growth accelerating, today’s low-interest-rate environment has made home affordability the best it’s been since early 2018.”