Don't Look at the Wall
Updated: Apr 1, 2020
“Don’t look at the wall, if you look at the wall you are going to hit the wall."
-- Mario Andretti
Hoping you are keeping healthy — we are physically distancing but not shutting down. Deals are still happening (primarily in the lower price points), escrows are mostly staying together, although with extensions and in some cases price adjustments. Certainly, now more than ever, Montecito and all of the Central Coast are a sanctuary in an unpredictable world. We look forward to keeping in touch and will be researching, re-grouping, reflecting and ready.
TODAY’S MESSAGE: DON’T PANIC.
Recession Does Not Always Equal Housing Crisis
The economic crisis of 2008 is unforgettable, however we need to remember that several economic downturns resulted in appreciated home values.
Of the last five recessions in U.S. history, three of them saw increases. Two of those three saw prices appreciate faster than the historical average.
Historically, recessions are not caused by housing alone.
POSITIVE NEWS FOR 2020
The market conditions are NOT the same as they were in 2008. Prior to the Coronavirus Pandemic, the housing market was coming off a very strong 2019 and home prices were forecasted to continue to rise.
LOOKING FOR REAL NEWS, NOT SPIN.
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.
1. Goldman Sachs Forecasts the Largest Drop in GDP in Almost 100 Years
The headline doesn’t reflect the full 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.
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.
BOTTOM LINE
There’s a lot of misinformation out there. If you want the best advice on what’s happening in the current housing market, I would love to hear from you and will be happy to share the actual, local facts.
Stay safe, keep your distance and don’t look at the wall!
