The Tidwell Report
The Coronavirus pandemic is “not the end of the world.” — The Stimulus Is Coming, The Stimulus Is Coming
March 24th, 2020
I put The Tidwell Report on a temporary hold after I wrote my last report on February xx because record low interest rates stimulated demand for homes and my business continued to take off from that first week in January. I may be writing intermittently given all that is going on, but feel free to call me with any questions. I am always available to you.
I hope everyone and their loved ones are safe, healthy, and following the recommended social distancing—what a fancy word for a semi-mandatory lockdown. Nobody imagined life could be like this—it is a lot less dramatic than in the movies when a pandemic breaks out. The other day I stood in line 6-10 feet from the person in front of me and the person behind me just to get into the grocery store…it took 2 hours because they limited the number of people in the store at the same time. I am looking forward to the summer when we expect relief. Someone told me Instacart, the mobile delivery service is the way to go from here on out.
Let’s Get Into It
I recently read about BC (Before Coronavirus) and that now we are AD (After Disease)—this will make a lot more sense in the future because of how much our lives are poised to change moving forward.
The Coronavirus pandemic is “not the end of the world,” said Michael Levitt, a Nobel laureate and Stanford biophysicist. Certainly, one upshot of the quarantines is that they are providing a drop in greenhouse gas emissions across the globe, bringing some temporary relief to our planet.
While the Coronavirus itself is scary, what’s scarier is the inability of the medical systems around the globe to support the population if infections continue increasing at an increasing rate—what happens if it hits the LA Homeless or jail populations?
There is already a shortage of masks, rooms, and respirators to go around if we do not limit the spread (rate of infection) of this highly contagious virus. The goal of the quarantines is to limit and to manage the spread. I get it. If governments can limit the spread, this takes pressure off those medical systems and enables them to operate without collapsing, and gives those working on vaccines to make progress.
I’ve spoken to a lot of medical professionals in the last week, some are clients and some are family members. Please take these quarantines seriously and do not put yourself at risk. It is not worth it. If you are going to read a headline, please check the source and judge its credibility. More importantly, read the article and do further research.
Economic Impact
It is a surprise to nobody that the effect of the quarantines will have a negative impact on local, national, and global economies because the quarantines effectively pulled the emergency brake on a substantial amount of commerce. Layoffs are happening and will only increase. We know that unemployment is set to spike with some saying that “the upcoming job losses will be unlike anything the US has ever seen.” One Fed official warned that unemployment could hit a staggering 30%. The National Restaurant Association forecasts $225 billion loss and up to 7 million jobs lost due to Coronavirus. Small business owners are not likely in a position to absorb a blow like this and could close unless the government delivers a stimulus package that makes all other bailouts look small.
Stock markets are in turmoil with week to week volatility that would cause even the most seasoned investor to feel queasy. I learned that all of the gains since Trump became the US President may have been wiped out at the level markets were hovering at yesterday. Let’s hope we are at or near the bottom, especially as a stimulus package is being negotiated in Congress.
While this is essentially a hard reset on our economy like nothing we have ever seen before, it is an “investment in survival” according to James Bullard, St. Louis Federal Reserve President. I understand and agree with him, but this is going to be a challenge the size and scale of which will be bigger than anything we have ever faced. Still, our federal government is many times bigger and more capable of addressing a problem this size.
While many are talking about Depression era levels of unemployment, the reality is that our country did not have unemployment insurance, social security, a Federal Reserve, and government insured bank accounts back then. Money was backed by gold in Fort Knox which prohibited bail outs and limited stimulus. It is the same country, but with a very different financial system structure. What happened then can’t happen now. Don’t let people frighten you.
The Stimulus Is Coming, The Stimulus Is Coming
Among recent actions taken by the Fed to calm the markets, the Fed cut the fed funds rate to zero. “The federal funds rate is the interest rate target at which banks borrow and lend excess reserves from one another on an overnight basis. A committee of the Federal Reserve sets a target federal funds rate eight times a year, based on prevailing economic conditions,” according to Investopedia.com.
Now that doesn’t have a direct impact on mortgage rates. Usually, we look to the 10 year treasury yield for that. While the 10 year treasury yield sunk below 1% last week, lenders did not lower rates to the extent that treasury yields dropped. This past week lenders actually raised rates because they did not have the staff to handle the volume of all the loans in process, as sales have been brisk, and refinancing has surged. We expect rates to float back down.
This weekend, President Trump announced that the National Guard already had been activated under a federalized status to combat the virus in CA, NY, and WA. This allows the National Guard to be managed by state governors with the federal government covering the cost. The purpose is to support the fight against the virus. Trump also committed additional resources, supplies, and gear from a national stockpile.
Chief of the National Guard Bureau shot down rumors that the National Guard troops would be used to enforce martial law—a lot of people speculated that this may be coming. They will be building medical facilities, helping to maintain transportation and logistics, for instance helping ensure grocery stores are able to get what they need, and facilitating law enforcement efforts as they routinely do for other national disasters like tornadoes, hurricanes, and large fires.
However, Congress still cannot agree on a Coronavirus rescue package, which just means it is now political. Remember this when you vote. Take notes on who the legitimate heroes are versus those who are simply posing as heroes. A lot of politicians will seek to use this as a way to promote themselves after this is behind us, and we will get past it.
The Real Estate Market — The Coronavirus is a threat to the housing market
Things are moving rapidly and every week is different. We had a great closing week and solid escrow openings. Unfortunately, our new listings have reduced significantly. The few listings we put on the market this week have a surprising number of showings set up. I personally received 40+ offers on a new listing last week, but there has been a general pullback in bidding wars and it is evident that real estate prices, particularly for less desirable properties, will be affected in the short term.
I expect the reduced number of new listings and the actions by existing sellers to withdraw their homes from the market or put them on hold will lead to a drastic slowdown in closings. I’d expect that the government orders to stay home will also severely limit sales, although those orders are have been in effect in Beverly Hills and Orange County for a few days and we still have sales in those areas.
Supply will remain low in the immediate short and then I expect it to start to pop up higher than its been in some areas. While some buyers will need to put their searches on hold until they feel more secure about their future, there remains an active number of buyers for entry level homes. There will be significantly fewer buyers at the upper price levels unless and until the economy restarts.
While I anticipate that days on market will rise and the number of home sales will decline, home prices at different price points will suffer…watch for the median price to fall.
While I remain busy—yes, we are permitted to operate under an exemption in the Stay At Home order—there has been a noticeable shift in the market. Instead of open houses, expect to see many more virtual and video tours. Prospective buyers may be able to view vacant homes as they have in the past, but listing agents will spend more time qualifying and vetting prospective buyers before being granted a private showing of owner occupied homes.
Loans
Buyers are seeing delays because lenders are so backed up with refinancing. Some lenders have increased rates to slow the volume of refinancing. To make things worse lenders are operating with a reduced staff trying to process a surge of new loans.
We are all in uncharted territory here. Never did anyone expect anything like this. Perhaps a recession from a tech collapse, not a recession from a global pandemic. Six weeks ago there were zero signs of a slowdown. Sadly, we will see one of the biggest slowdowns.
Remember, we are in this together.
REAL ESTATE TAXES
California property taxes are still due April 10th but exceptions could apply. Go to your local county assessor’s offer to find out whether they are allowing you to request a cancellation of penalty if you are unable to pay due to the Coronavirus.
INCOME TAXES
Tax day is moving from April 15th to July 15th. “All taxpayers and businesses will have this additional time to file and make payments without interest or penalties,” according to the US Treasury Secretary. California is expected to follow suit. Contact your CPA for full details.
ESSENTIAL SERVICES – GAS, WATER & POWER
LADWP will NOT shut off service for non-payment during COVID-19 response. “If you receive a disconnect notice in the mail please disregard it! Your water and electric services will NOT be shut off.” If LADWP does not serve your home, contact your service provider.
SoCal Gas has temporarily suspended service disconnects EVEN IF you received an automated 48 hour shut off notice for Residential Customers who are having a hard time paying their bills. Call them to learn more if you need assistance. If SoCal Gas is not your provider, please call your provider.
CALIFORNIA EXISTING SINGLE-FAMILY SALES REPORT
The California Association of Realtors reported that:
- Existing single-family home sales totaled 421,670 in February on a seasonally annualized rate that represented a 6.6% month over month increase from January and a year over year increase of 5.9% from February 2019.
- The state wide median price was $579,770, up 8.5% from last February.
- The unsold inventory index was a 3.6 month supply of housing, down from a 4.6 month supply in February 2019.
STOCK MARKETS
*Stocks drastically declined last week*
Stock markets were in a free fall last week as the amount of Coronavirus cases increased exponentially leading major cities and entire states mandated people to stay in their home. By week end most of the U.S. had been ordered to close restaurants, gyms, stores etc and people were ordered to stay home. Nearly 25% on the U.S. population were placed under a stay at home order this week. An estimated 2.25 million people filed for first time unemployment this week, the highest week ever by far as business that were ordered closed could not afford to keep their workers. This took a significant toll on the stock markets. Not even a rate cut to 0% by the Fed, and two government stimulus packages could slow the fear of shutting down so many businesses.
By The Numbers:
The Dow Jones Industrial Average closed the week at 19,173.98, down 17.3% from 23,185.62 last week. It’s down 32.8% year to date.
The S&P 500 closed the week at 2,304.92, down 15% from 2,711.02 last week. It’s down 28.7% year to date.
The NASDAQ closed the week at 6,879.92, down 12.6% from 7,874.88 last week. It’s down 23.3% year to date.
TREASURY YIELDS
- The 10-year treasury bond closed the week yielding 0.82%, down from 0.94% last week.
- The 30-year treasury bond yield ended the week at 1.55% unchanged from 1.56%, last week.
MORTGAGE RATES
*rates rose as lenders tried to reduce the amount of new refinance applications*
Overwhelmed by the number of new loans in process, the struggles of getting them processed with employees working at home, and interruptions in mortgage secondary markets, lenders increased rates to slow the amount of new loans. The Freddie Mac Primary Mortgage Survey released on March 19, 2020 reported mortgage rates for the most popular loan products as follows:
- The 30-year fixed mortgage rate average was 3.65%, up from 3.36% last week.
- The 15-year fixed was 3.06%, up from 2.77% last week.
- The 5-year ARM was 3.11%, up from 3.01% last week.
Hang in there and do your best to find something to do that you enjoy every day!
Copyright © 2020 Kevin Tidwell Real Estate, All rights reserved.
