National Real Estate Market Update: May 2020
When is the economy going to recover? That is the question on everyone’s mind. In this Real Estate Market Update I clarify what is going on based on research.
Major financial institutions are calling for recovery in the second half. We’ve got four major financial institutions here, Goldman Sachs, J.P. Morgan, Morgan Stanley, and Wells Fargo, and their projections for the second quarter of this year through the end of the year. What we know right now is the first quarter has come in. In this initial advanced GDP estimate constricting or being negative 4.8, and then this wild and crazy ride down here in the second quarter.
Even now as we start to talk about businesses coming online, still a lot of economic activity slowed across the country. And then as we turn the corner to the second half of the year, in the third quarter, three of the four institutions are calling for positive economic recovery. And then in the fourth quarter, four out of the four financial institutions are calling for positive economic recovery as we go forward, as we start to come back online with businesses. As we start to look to the second half of the year, we’re looking to more businesses, more things coming online, and more economic activity growth there.
What make this Real Estate Market Update unique right now though, is the three sciences that economists have to deal with right now. In the first year is the business science, and that’s what they’re normally used to doing. And that’s answering the question: how has the economy rebounded from a similar slowdown in the past? We are in a unique time right now where we’ve got to layer on two additional sciences.
The first being the health science and that’s answering the question: when will COVID-19 be under control and will there be a flare-up of the virus this fall? And taking that into account as they’re making projections. The third part is the people science, and that’s after businesses are fully operational. How long will it take for American consumers to return to normal consumption?
And so while we deal with this situation, that is the coronavirus, economists are dealing with answering a lot of questions on these projections, but what we can be confident in is no one is calling for an L recovery. We’ve heard the terms U and V, but an L recovery is when the economy goes down and stays down, and this is not what we want. The good news is though that no one is calling for that.
When you look at what’s being said out in the media and experts are saying is, “Hey, we’re going down right now. First quarter was negative and this wild and crazy ride. And then as we look to the future, the second half of the year, we see more economic activity as we bring the economy and businesses back online.”
And I want to bring a quote in from Sam Khater from Freddie Mac, the chief economist, into this Real Estate Market Update. He says, “Although the uncertainty of the crisis means forecasts of economic activity are more unclear than usual, we expect that most of the economic damage from the virus will be contained to the first half of the year. And going forward, we should see a recovery starting in the second half of the year.” There is uncertainty around all the things that economists are dealing with right now, but we can look at it and be hopeful that the damage is largely contained to the first half of the year. Wouldn’t that be great?
Here is a CNBC quote that says, “Evidence is mounting that homebuyers may be coming back to the market, and after demand plummeted in the past months due to coronavirus.” So starting to see the evidence of homebuyers coming back, it really comes to what do we know and what do we not know right now. We know there’s a lot of questions about the virus. There’s a question about a vaccine. There’s this idea of how do we thread the needle and open up the economy in a safe, responsible way? These are still questions that are not answered in this Real Estate Market Update.
What we do know is that we started this year stronger than ever. We are at a record-low interest rates and equity is strong amongst homeowners. We’re in a high unemployment time right now and hopefully that’s temporary, and we know the Fed is doing everything they can to support the economy. I think as we look to the second half, housing is a bright spot to help lead the way in recovery in recovering the economy.
We started off the year and we’re trending up, and then beginning of March, just fell off a cliff as consumers retreated, all of us retreated, to our homes. But do you see this bottoming out across North America in the middle of April, then this rise back up? Certainly some of that is going to be due to pent up demand as people who retreated are ready to get back in the market. I don’t know if that trend continues up such a steep pace but it’s safe to say that we’ve seen the bottom right here in the showings.
So pointing to what can we expect here in the second half of the year, the US homeownership rate is climbing and we expect that to continue to climb. After a bottom out the last four years, we have seen this upward trend of people wanting and more and more to own a home. They want the benefits of homeownership. That’s a trend that we can expect and we’ll be covering and expect to continue. And why is that happening? A lot of it is due to the rising cost of rent across this country. And also, renters don’t get the advantages of a refinance, the tax advantages of homeownership, or the pride of ownership. And we know that through these studies we’ve looked at, renters are saying more and more, “I want to become a homeowner.
I hope this national real estate market update has found you safe and healthy and well. I’m Shemeika Fox, Your Santa Cruz Real Estate Expert, and as always, I’m here to help.
Santa Cruz Realtor
David Lyng Real Estate