2020 now marks the year of historic global and economic changes…
We all know how this started. What we didn’t realize is how a virus would affect our world globally. The economic markets have been in reaction mode since this began and our lives as we knew them, have come to a screeching halt. The two main headlines running in our newsfeeds are our Health and our Wealth.
This is not the first time the markets have turned and each time we see an adjustment or downturn, there is something that propagates it. This time it is Covid 19.
Challenging Times or Great Opportunities?
There is no doubt in my mind that there are many people going through great challenges at this time. Many have lost their jobs or are now working from home and adjusting to a new way of doing business. Others have had to temporarily close their businesses and others are watching their retirements shift downward. These times will test us all and our resilience.
But the thing to keep in mind is that what we are experiencing is temporary. But you have to have the right mindset to navigate these waters as they are challenging. But what happens when changes in the economy and especially our lifestyles directly affect our lives is that we are afforded the opportunity to see what we have been doing and make changes to do things differently moving forward.
The Economy – Before
A good thing for us to look at is where we stood before this economic upheaval and global shutdown. The economy was healthy and strong. Unemployment was low, running around 3.9% and inflation was kept in check. The mortgage interest rates were and still are extremely low, dropping to record lows in Feb and early March to generate $25 million dollars in refinances. On addition to that, we have such a huge demand for housing nationally and that still remains. These are things to keep in mind as we move through these times. Where we were economically prior to this global event will definitely impact how quickly we begin to recover.
The Difference Between 2008 and 2020
When an economy turns, our first response is fear. With 2008 in our rearview mirror, the fear of a repeat of that comes to the forefront for many. My intention is to explain clearly why this change in the market is NOT 2008, and we will recover very quickly once we move through this change in the market.
First, leading up to 2008, you had homes appreciating annually between 6-12%, which is extremely high. But given what was going on from 2005-2007 in the lending industry, it makes sense. We also had approximately over 8 months of inventory on the market. What this means is we had much more supply than we had demand for housing. You blend these with the disintegration of the financial markets beginning with the filing of bankruptcy by Lehman Brothers, the plummeting of the stock market, surging unemployment to 10% and the subprime market which greatly encouraged buyers to well over extend themselves. It became a “Buy now and Pay Later” culture, which had no lasting power and was like a house of cards. That is how 2008 became the Great Recession.
Our current housing is running about 2.9 – 3.1 months of inventory here in Sonoma County. The average appreciation has been running about 3 – 4% annually since the 2012 economic stimulus of lower rates to spur on the housing market after 2008.
These are the numbers from Freddie Mac
This information is from NAR (National Association of Realtors)
The Facts Now
Now, even with the market changes as of March 2020, all of the industry practices have changed since 2008. So let’s look at the facts:
- There is still a high demand for housing throughout the nation and inventory is still low.
- The interest rates are still staying low, despite the fluctuations in the market as the Fed will inject what is needed to calm the turmoil in the markets.
- Unemployment should still remain low even due to recent temporary layoffs, keeping it under 4.5%, even with the 3 million applications for unemployment filed last week.
- The stock market volatility is solely due to the uncertainty. There is also a huge surge in stock purchases being made, keeping the DOW right around the 20,0000 mark.
- This economy was running strong prior to the economic changes we are experiencing, which will greatly aid a very speedy recovery.
- Everything will settle once the virus is mitigated
Changes in The Real Estate Industry
At this time in the real estate industry, we have been chasing a moving target and having to make great changes in how we do business. Even though Homeland Security declared “real estate” and essential business, we are still governed by our local jurisdictions. Here in Northern California, they have not agreed with Homeland Security that our business is essential, so we are to continue to follow mandated protocol, which is a good thing. The safety of everyone should be absolute top priority. We are simply learning to do our business differently and more virtually so we are still able to be of service to people wanting to buy and sell real estate. Read here for a breakdown of industry changes due to Covid-19.
Honestly, there is so much media and needs all reporting something different as to the future of the economy. The word “recession” scares most people, but it is a word worth understanding. It simply means to pull back or recede. The “shelter in place” automatically placed in a recession. People are doing less of many things when it comes to spending money. But again, this is temporary. Look at it this way, we have been put on a temporary break. What this will do is basically reset everything, including our lives and choices.
Our economy was extremely strong prior to this shutdown and all real data points to a healthy recovery once we are past this. Even the stock market with its fluctuations is still hovering around 20,000 points. Prior to this, people were making money and spending. Interest rates were low and housing demand was high. It is the timing of the recovery that we cannot predict. But even if we are to remain shutdown for another month or so, changes are being made, stimulus packages are being approved to help everyone move through this and get to the other side. Most economic data at this point is predicting a low 2nd quarter, due to the shutdown, a slow recovery pace the 3rd quarter and an accelerated 4th quarter, where we start thriving once again.
Though these times present new challenges for all of us, we are afforded an opportunity here to make adjustments to our present and future. As I mentioned, our mindset is probably the most crucial thing for us to really focus on first. The second its the health and safety of our families, friends and communities. With those two being done correctly and especially practicing “social distancing”, we have a much better chance of moving past this and into better times. Realize what you can control and what you can’t….that’s a good place to start. Start making plans for your new future. Use your time to explore your creativity. Reach out to friends you haven’t spoken with in awhile and reconnect.
Start dreaming about what you really want for yourself.
This time will eventually pass and the better we get through this together, the better off we will all be on the other side of this….
Much love and keep up with the social distancing,