2020-03-31
Should you be concerned about the Housing Market? [video]


Are you worried that COVID-19 virus is going to affect the San Diego housing market? Are you worried that if we have an extended recession that your home may actually lose value? Do you need to buy or sell a home and you're worried about how you're personally going to be impacted and what your next step should be? Well, that's why I'm here. I want to talk a little bit about where the market was right before the pandemic, what's been going on over the past two weeks, and what to expect as we turn the page on the virus, which we will do.

I'm Nick with Iannitti Realty Group. Thanks so much for tuning in. Before we get started, I just want to give a real big thank you to all of our first responders, not just the police and firemen and doctors and nurses that are putting themselves in the front line through all of this, but also all of the grocery store workers, gas station attendants, people doing deliveries, everybody who's out there putting themselves at risk showing up to work so that the rest of us can shelter in place in a much more comfortable way. I really want to give them a big shout out and say thank you so much. Also, hope that you are healthy and your family and everybody's doing what they need to do following these guidelines to stay safe. So having said that, we're going to jump right into where the market was.

If you've been watching my videos from the beginning of the year, you know that the market this year, especially in San Diego, it took off like a rocket. Right out of the gate, we had a red hot real estate market and that actually was the case all across the country. If you look at this slide here for Existing-Home Sales, in the beginning of the year, we saw a tremendous growth all across the country, South and Northeast with double digit growth and San Diego was no different basically. Still the same old story. Supply and demand, I know they sound like a broken record. I've been saying this forever on every video, but as far as our level of inventory right now in the county of San Diego for all housing types of prices, we're still sitting at only 1.7 months worth of inventory for the entire county. That number is flat. It's been that way since December, and that's definitely been sprung on what we're seeing in the market.

So as far as what's been going on in the market since we've had this quarantine issue, really things have been evolving day by day, hour by hour, but I just want to give you a little bit of a window here. In the last 10 days, from March 20th to March 30th, according to the San Diego MLS, we had 999 new homes come onto the market in the past 10 days. We've had 744 homes go pending in escrow in the past 10 days, and we've had 1,002 homes that have sold in the past 10 days. So if you think about it, through the heart of this pandemic here, every single day on average, we have about a hundred new homes come on the market, 75 of them get going to escrow and about a hundred of them sell, which is huge. So things are still moving forward.

In my own personal real estate practice over the past two to three weeks, I have been incredibly busy. I have four current escrows right now. Two of my listings are getting ready to close. I had three buyers write offers last week and on all three of those properties, the homes received multiple offers. So people are definitely still out there. Even though there is a pandemic, that does not affect the fact that people still need a place to live.

Also still our rates are still incredibly low. The interest rates, if you noticed, the 30 year mortgage rate always follows the 10 year treasury rate. At least they've been in relative lockstep for about, I don't know, all way back to the beginning of the '70s. However, for the first time in a very long time, we did see a little bit of a divergence in the two of them being related to one another and I think that's, again, just due to a little bit of uncertainty here in the market, but again, the moral of the story is that rates right now are incredibly low. If you are looking to buy a home, this is something you absolutely want to capitalize.

Everybody's always asking me, I want to get a deal. I want to get a deal. This is the deal of the century. It's in the mortgage. You have to remember that that's the deal you're getting, especially when we're seeing rates as low as they are. It's absolutely increasing the affordability here in San Diego as it relates to the direct proportion of money you're putting out every month out of your budget to pay your mortgage. When we're looking at the stock market, we've obviously seen a lot of volatility there as well, which is par for the course. Whenever there's uncertainty, markets don't like that. Things go up and down. But I wanted to show you this slide here because this shows you the impact that the S&P has withstood in previous viruses going all the way back to 2003 with SARS.

So what we're seeing right now is typically kind of, like I said, par for the course, although we have seen some stability in the market over the past day or so with the $2 trillion stimulus. And I'll talk about that more here in a little bit. The big thing basically right now is just getting people back to work and when that's going to be able to actually happen due to the virus. And what we know is that yes, there are segments of the economy that are getting hit. Obviously the restaurant sector is probably the largest employer here in the economy, but we also know that there's plenty of people that are still able to work. Myself, real estate was just deemed an essential business, but healthcare, pharmaceuticals, law enforcement, insurance services, there's plenty of people in high tech jobs that have technology and are still able to actually work and contribute.

PWC did a survey recently and what they found was about two thirds of the people thought that it would take us about a month or so to at least get the workforce reassembled after we get the all clear, 90% of those people think that it's going to take about one to three months to get everything back to businesses as usual, again, once we get the all clear. But what I want you to realize is right now the market is being hit in a particular way. That the segments that are being hit are really discretionary spending and it's interesting we've seen this event happen before.

David Rosenberg, he's the chief economist with a Gluskin Sheff & Associates. He basically said that what 9/11 has in common with what's happening right now is that the shock has also generated fear, angst and anxiety among the general public. People avoided crowds then as they believed another terrorist attack was coming and they're acting the same way today to avoid getting sick. We're seeing the same parts of the economy under pressure, airlines, leisure, hospitality, restaurants, entertainment, consumer discretionary services in general.

What I want you to realize, myself and David, we're not comparing 9/11 to COVID-19. We know it's completely different. 9/11 was a single day terrorist attack, COVID-19 is a global pandemic and we're going to be experiencing the repercussions of it for years to come. It's going to take 12 to 18 months to get a vaccine, but we know even after that vaccine, people are probably still going to die from COVID-19 the same way 40,000 people here in America still die every year of the flu, despite the fact that we have a flu shot.

But what we're talking about here is the parts of the economy that are being hit. And a lot of people are talking about, 'Hey, all this work stoppage is probably going to lead to a recession,' which I would agree with. And what is really going to happen with home values as we see that recession basically take hold. So a lot of people are asking me now, 'Is this the same thing as 2008?' It's not. It's completely different. If you look at the slide, yes, in 2008 with the housing crash, the S&P took a correction of about 51% and we saw home values depreciate over 10%. However, when we look at the dot-com and the 9/11 crash, we're still seeing about a 45% to 50% correction in the S&P. However, home values actually stayed stable during that time.

And this is the same type of thing. We're talking about an event based scenario here, whereas in 2008, we were talking about an economically fundamental erosion. We were basically getting loans to people who should not have had them, which ultimately allowed us to build this housing market in a deck of cards. And basically, that had some other ramifications once things started to get bad. This is not what we see in these particular types of situations.

What I want you to realize too. Bill McBride came out and said, with the sudden economic stop and with many states shutting down by closing down schools, bars and restaurants, his view is that the US economy is already now in a recession that started this month, and GDP will decline sharply in Q2, as Goldman Sachs is forecasting, and the length of the recession will depend essentially on the course of the pandemic. I think that is true. If you look at this Goldman Sachs GDP forecast, we're probably going to see a pretty big hit here come next quarter and then once we're able to turn the page on the virus and get the all clear, we're probably going to be able to pick up the pieces rather quickly.

Again, it comes back to the fact that our underlying fundamentals in the economy before the pandemic were incredibly strong. Okay, so again, this event based issue is putting a lot of downward pressure right now and once we're able to get our heads around that and turn past that, we should see some relief. We should see the economy picking back up rapidly. But the fact that we're in a recession right now, what I want you guys to realize again is the definition of a recession is simply two consecutive quarters where we don't have positive GDP growth. That's probably going to happen right now. Also, consider too that we are in a 12 year bull market. Things have been going up and we knew it was only a matter of time before we saw some type of correction or some type of recession that's par for the course. We just didn't know what it was going to look like. We didn't realize it was going to be pandemic based.

But, however, back to the slide, I've done many a video on this for the past six months. A recession does not equal a housing crisis. It does not. A lot of people can only remember back to the last recession in 2008 and they know that they saw a lot of homes losing value in that time. That was basically brought on, it was the housing market that collapsed and the housing market took the rest of the economy with it in that recession. However, if you look at the four recessions prior to the last one, we actually, in three of them, we actually saw positive home appreciation and that appreciation actually outstripped our 60 year moving average. So theoretically, recessions are not directly correlated with home values. That there is no correlation. And so I want you to get that out of your head.

Also, the Wells Fargo Investment Institute, they've come out and said, we do not expect a repeat of the severe recession of 2008-2009 because the virus and oil shocks are not endemic to the financial system but are rather external. Once the virus infection rate peaks, we expect a recovery to gain momentum in the final quarter of the year and especially into 2021. So again, basically, they're looking at the underlying fundamentals of the economy and the fact that once we're able to put this event past us, we should be able to get back to work and ramp things back up pretty quickly.

The other thing though that is crucial to realize why what we're going to have right now is not like 2008 is basically the total home equity cashed out. When you look back to 2008 right before the crash, we had pulled out $824 billion of home equity. People were pulling all this equity out of their homes to go and buy more homes or boats and cars, all this other stuff. That does not happen today. Today we only see about $232 billion of equity pulled out of the housing market. What that equates to is that now 50% of all homes in the United States have more than 50% equity in them. And that's huge. In fact, 37% of all homes in the United States now are owned free and clear without a mortgage. What that means to you is the fact that there's so many homeowners who have so much equity built up in their homes right now. They're not in a position where they're just going to simply walk away from those homes like they were in 2008. That was part of the problem.

In 2008, we had so many people that had no real equity in their home. When the going got tough, they simply just walked away and gave those homes back to the bank. We're not going to see that again in this particular environment because people have too much to lose. They have too much built up in their home where they're not just going to walk away and do a fire sale. I've had lots of clients asking me, 'Are we headed for a fire sale? Are we going to see a huge wave of foreclosures coming?' No, I don't think so. When you look at the steps again that the government is taking to head this thing off of the past, the Federal Housing Administration indicated it is enacting an immediate foreclosure and eviction moratorium for single family homeowners with FHA insured mortgages for the next 60 days. Furthermore, the Federal Housing Finance Agency announced it is directing Fannie Mae and Freddie Mac to suspend foreclosures and evictions for at least 60 days. What that means when it says at least 60 days is it could be longer. We could very easily see this thing go 90 days.

What I want you to understand though, is if you take those FHA, Fannie Mae and Freddie Mac mortgages and combine them, that is a 90% of all the mortgages here in the United States. So in other words, 90% of all mortgage holders right now are already being told by the federal government that they're not going to take action against them for at least the next two to three months as this thing starts to unfold. So I don't expect to see this wave of foreclosures because no one's going to be foreclosed on in the next 60 or 90 days. So keep that in mind as well too. It's important to keep the perspective.

So anyway, that's what I wanted to share with you. If you have any questions about the concepts that I've talked about, if there's any particular thing that I didn't talk about, I'm more than happy to answer any questions that you possibly have. Just reach out and let me know. And that's it. Thanks so much for tuning in. Remember, who you choose to negotiate for you absolutely matters now more than ever. Where you're getting your housing market information also absolutely matter. So thanks so much. Stay safe out there.

Call me today to discuss your real estate concerns or needs 619.880.6785  

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