The other day I was listening to a webinar presented by Alan Nevin, Director of Market Research at Xpera Group and instructor at UC San Diego Extension since 1980. He also holds multiple master’s degrees in statistics, economics and real estate from Stanford. I love how technology gives us the ability to learn directly from such astute people. He was more bullish about the current situation of the world than I expected and I’m curious to see if his platform changes as the world’s situation seems to be changing rapidly from day-to-day.
He started by comparing this to 2008. It’s a question on many people’s minds when they think of where real estate is going. At the moment we are in a much better spot. We did have a surge in unemployment claims and those numbers are expected to double in April. However, our current unemployment rate was at 6.8% in 2008 and this past March it was at 4.4%, up from 3.5% in February, only about a 1% difference even with all of those unemployment claims. We also have about twice as many job openings right now, although those are expected to decline.
Interest rates continue to be super low. I remember talking about how low interest rates were in 2008 when the average was 6.14% for a 30-year fixed and now they are in the 3.3% range! So overall we do still have jobs and money is still cheap. This is good news, but there’s a lot of change happening. There is data that suggests our lives might be starting to wake up to our new normal come early June. I hope that is the case! If it is Nevin predicts that most places will recover quickly. Most tenants were already prepared to pay April rent and if Uncle Sam can help them pay May rent he expects the recovery to be quick.
Not only are forgivable loans being created, but the SBA is covering 6 months of principal and interest on their loans, as long as the loan payments were current. Financial institutions are doing what they can to help borrowers. There are mortgage relief products for landlords and programs for tenants. Offering more leniency with mortgages can help fend off foreclosures and protect the real estate industry as well as prices. Overall Nevin thinks we will see a V curve in the economy. He thinks it will bottom out next month and shoot right back up.
What does this mean for investors and landlords?
While lenders are helping home and business owners, new mortgages for investor landlords are riskier. Cash buyers will have an easier time getting a loan since they can provide a healthy down payment and show that they can afford the risk themselves. Buying to be a landlord is a little more risky in the short run now too. Prices aren’t down, so there aren’t amazing deals to be had and many tenants are in the industries that are being hit the hardest; the hospitality and entertainment industries. In the coming months, these tenants might have a harder time keeping up with their bills which could leave the landlords short on rent.
What will happen with commercial spaces?
Small commercial may also be hurt for a while. Even though restaurants are still serving food they are not making as much in one night as they might normally. In anticipation of reopening they may have few choices of where to cut costs without disrupting their typical caliber of service. Other retail storefronts that may have relied heavily on foot traffic now have no choice but to rely on online sales. If they weren’t set up for that already they may have a difficult time covering their expenses when they are allowed to reopen.
Big commercial will also see some long-term shifts. Countless companies are in the sudden position of everyone working from home. For many, this can be an eye-opening experience in which they learn how well the company can still function even if meetings are no longer face-to-face. There was already a trend moving towards allowing more employees to work remotely and those that have been slow to adapt might now see the benefit to their budget of cutting out some desk real estate and allowing for more flex work.
Will the single family residential market be affected?
Interestingly, as corporate America shifts to smaller offices and more work-at-home routines I think workers are going to demand more personal real estate. How many of you are suddenly working from home and feeling cramped? I used to work from our desk with a nice two-screen setup and a place for my laptop to serve as a third, as needed screen. Now my husband is there and I’m on the couch. Another couple we know had to put the husband at the dining table so he could set up his dual monitors. A third couple we know is sharing the dining table, literally staring at each other workday in and day out.
The economist I listened to the other day thinks people working remotely just use their laptops and don’t need the space they normally use at an office. This is one point in which I wholeheartedly disagree and it will be good for the residential market. I think when we come out of this many people will be working from home more permanently than before and they will need elbow room! I think in the long run it will be harder to sell efficiency apartments and 2-3 bedroom units will become the most desirable, depending on family size.
No one can really predict the future. We can just do our best to help each other out and try to make good decisions. I hope some of this insight will help you think about your future plans and help you design your future!
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Content provided by Women Belong member Molly Heyen