The Coronavirus Pandemic is now a fact in all our lives. It will get worse, before it gets better. Yet humans have endured far tougher calamities. Pandemic means worldwide. It does not mean 100% fatal.
Friend, you and I haven’t experienced anything like this before but people on this planet have endured far worse many times. In 1918 the Spanish Flu pandemic ravaged the whole world. Someone awoke healthy, in the morning coughed and sneezed, and was dead before midnight. The Spanish Flu killed more Americans than World War I. Still, many more people lived than died.
The plague took 25% of the world’s population in the Middle Ages. Carts rolled through the streets of London filled with bodies, to the call of “Bring out your dead!” Many more people lived than died.
The Economist magazine reports experts projecting between 1,000,000 – 2,200,000 US deaths. Horrible! People over 60 are at substantially higher risk than folks under 40. Truly the virus is a disaster. If those projections were proportional, San Diego County might suffer 10- 20,000 deaths. Shocking! But many more of us will be spared.
Come September, both you and I will likely be alive. Probably we will each know many people who were infected. We might even know somebody who passed. We’re told the economy will be ravaged. Does that mean that apartments will be selling for 1/3 less than what they sold for last month?
Probably not. In January San Diego County was 100,000 rental units short of what our population needed. People live in Riverside County, Imperial County and Tijuana and work in San Diego County because we have jobs but not enough rental housing.
Suppose the county suffers 20,000 deaths. Then the County might need 10,000 fewer housing units. Homeowners tend to be older than renters. Suppose that we needed 6000 fewer homes and condos and we need 4000 fewer apartments. 100,000 shortage -4000 decreased demand = 96,000 rental shortage.
Do we really think that more than 96,000 rental households will go to … New York? Louisiana? Where? Pandemic means worldwide. Every state will face the it. No city can avoid the virus and then create an explosion of jobs and apartments for newcomers.
What’s happened for the last hundred years will happen in the next six months. Thousands of households will leave San Diego County. Other thousands will move in. Some young people will leave home and some couples will divorce. Natural increase, births over deaths, will create more new households. There will be lots of movement, but it is extremely unlikely our county will lose 90,000 rental households by September.
Most people who live in San Diego County now will be here next year. Government won’t cut construction fees and upzone to triple the apartment construction. Even if they did it would take more than a decade to correct accumulated shortfall of rental housing.
Remember all the things we worried about. World War III did not happen. Y2K didn’t end civilization. Ebola didn’t eliminate humanity. Coronavirus is wretched but we will get through it. San Diego’s economy is better diversified than 80% of US cities. No for-profit employers have more than1% of our jobs. San Diego will continue to have a robust and extremely diverse economy plus a spectacular climate.
Stay calm. Pray. Be more encouraging and nicer. Show more compassion and generosity. Enjoy time with people you love. Rental owners will still do well in the coming years.
Oh, and remember, wash your hands for 20 seconds and pray longer than that.
-o0o-
Terry Moore, CCIM, is the author of Building Legacy Wealth: How to Build Wealth and Live a Life Worth Imitating. Read his “Welcome to My Blog.”
Hi Terry and Sandy!
REALLY nice to hear from you.
I miss seeing you both on a weekly basis.
Enjoyed the blog.
I think of you often as a shining example of TRUE CHRISTIANS!
Sadly all too rare in the world today.
Thank You again for staying in touch.
Stay safe and healthy!!
Great perspective Terry!
I wonder about the ability to rent to a population devastated by unemployment. It takes a lot more than being alive to rent housing. And, there are legal delays in paying rent. I’m counting on a drug/vaccine to save us.
The article touched on only one reason — the presence of a society’s struggle with the virus. but it didn’t affect the economic cycle of the exchange correction, employment market and financial correction … all these additional influential factors can significantly affect the real estate market not only in California but throughout the country
Terry,
Great job and I believe you are accurate in your positions.
I also believe that the repercussions from the inevitable economic fallout, on a micro and macro scale, will change the very fabric of our society in several ways seen only during the “Great Depression”, where government took a major role in providing stability and leadership through multiple programs over many years.
Individuals will have no substantive means to “pay back” rent arrears, loans or other financial obligations when this virus runs it’s course. Creditor’s may not have a sympathetic ear in the court systems due to the massive numbers of greatly affect individuals either.
This will require a more holistic, socialistic democratic approach where the federal, state and local governments co-operate in providing legislative efforts to balance the needs of a society ravaged by shut downs and debt.
This means “give aways” to owners, vis-a-vis, massive tax breaks for loss of revenue; renters income tax write offs for “rental” payments, small business owner’s getting low to no interest rate loans with very liberal payback options, a Capital Gain Tax reduction or “holiday” that will stimulate “new money” into the market place, etc.
As draconian and politically repugnant as this scenario may seem, the vast majority of renters will be voting for politicians who will advocate these types of measures and many owners will see a departure from our long standing free enterprise system change significantly.
I am not advocating these “remedies”, I’m merely suggesting they are more apt to occur than many would ever believe possible and it’s the precursor to real “class warfare”.
People will still need a place to live and work and that will never change, even in these unprecedented times.
May God bless us all.
Very well written. Glad I found you and look forward to the next post.
Thanks Terry
Hi Terry,
I also have been giving a lot of thought to apartment values come September or after the Coronavirus passes. I have a different perspective and would appreciate your response.
The government is about to inject the largest increase in the money supply in history, purportedly around 2.2 trillion dollars. Immediately, or after some lag time historically this should lead to a substantial increase in inflation and increase in interest rates to compensate lenders. As you know much of the recent increase in apartment prices (and homes) has been due to lower interest rates. With lower interest rates you can buy a home or condo for twice the price if interest rates fall from 8% to 4% making the payments the same even though prices have doubled . The same “may” apply to apartment prices. If buying an apartment complex (and buyers always set the prices), and future buildings with higher interest costs may well mean a substantial drop in future values or prices upon sale. This could mean a drop of 1/3 to 1/2. What say you?
Terry,
A good faith outlook and a “guns or butter” discussion here! I think Covid-19 may have germ warfare roots. If so there’s antidotes on most efficient ways to fight it.
Lessons from the great depression show that massive production of assets by every actor in the economy was the best way keep people productive, banks open, homes occupied and real rents reduced.
They say that WW2 production got the economy mobilized finally, but there’s better options such as lowering wealth gaps and mobilizing to help the Prince of Peace and pushing for prosperity instead.
Peace!
Stan
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work.