Clients, Colleagues, and Friends,
As this virus has made clear, we're all in this together. No one is immune. Boulder schools are closed, CU is closed, and soon, it's possible that some U.S. cities will be on lock down.
There is a lot of fear and anxiety out there.
Our position is that the health of staff, colleagues, and clients come before real estate transactions. We will act accordingly to protect the health and well being of our community. This means some changes to our business practices.
At House Einstein, we have a bunch of deals under contract right now. We've heard from buyers wondering if they should go ahead and close. Sellers are asking if they should hold off listing. Past clients have even contacted us, looking to establish contingency housing arrangements in case of family illness. We're available to have these conversations, and while we may not have the perfect answers, we promise to give you our honest advice.
Everyone is worried. Everyone is waiting for the illnesses to start to pile up, and for good reason. Growth has been exponential in many other countries. Likely, it will be here, too. The resulting economic shift could be tremendous.
Our local and state government are correct to cancel school classes, large gatherings, and encourage social distancing. It will come with an economic price tag but it's the right call. We are deeply grateful for exceptional leadership at the state and local level.
What We Expect to Happen
1. Delayed decision making. During a time of emergency, most people put off major or risky investment decisions. Investment managers liquidate risky investments in favor of safe havens. Real estate buyers delay until there is more economic certainty. If you're a potential seller, you'll probably conclude it's too late to accelerate your timeline and get ahead of the slow down. You'll likely delay, too.
2. Market impacts won't show up for a month or longer. Real estate is not the stock market. Transactions take time, trading costs are material, and as a consequence, the market moves slowly. Data is typically analyzed monthly, so this month's impact won't show up in the numbers until April.
Also, keep in mind that global pandemics aren't a normal buyer contingency. Contract terminations for Covid19 will likely result in loss of earnest money. Most buyers will close, butterflies in their stomach or not. If they chose their property wisely and have a sense of personal economic certainty, they're probably correct to do so. Real estate is a long game.
3. More disruption. Extended school closures, air travel shut down, restaurants closed or transitioned to delivery services. The antidote to the exponential growth of this virus is to stay home, i.e. social distancing. At this time, it's the only thing that will slow it down, short of a miracle vaccine.
4. Slower real estate market activity, followed by a pick up, when the global economy recovers. Showings and buyer demand will drop due to social distancing, especially if you are in a high risk category or close to someone who is high risk. I think the lull will be with us until the end of May, at the earliest. It all depends on how our health care system and economy handle this crisis. As a country, I don't think we have the political will or national social unity to do what some Asian countries have done to slow the virus. I expect it will get pretty bad.
By the way, it's time to cancel all open houses. This should be ordered by the Real Estate Commission, but if not, consider it ordered by common sense.
5. Mortgage rates will keep dropping. The Fed already increased its repo operation, dropped rates, and will does everything it can to stimulate the market. I do not believe we are at the bottom, yet.
If you haven't re-financed recently, you should look into pulling the trigger in near term but you probably have at least a few more weeks. Low rates will eventually encourage buying activity, and you want to be ahead of that.
6. The market will eventually reach a "new normal." This should impact the high-end far more than the entry level. For certain price ranges and locations, the lull might reveal buying opportunities but remember that it's nearly impossible to call a bottom. Buyers and sellers should analyze each situation and real estate acquisition/sale carefully. Choose your real estate agent carefully (why us). It's their job to help you make sense of the market. Once the new normal is here, all the stimulus the Feds are dumping into the market should eventually get things rolling again.
7. Wearing my former analyst hat... expect higher equity market volatility but the overall trend will be down until 1Q or maybe 2Q earnings are reported. There are just too many unknowns with respect to demand and the integrated, and now disrupted, global supply chain.
Just remember: historically, the market leads the economy, not the other way around.
Black Swans
1. A vaccine is developed much faster than anticipated and distributed for cheap, globally. While possible, it's probably wishful thinking. Supposedly, a realistic expectation is 12-18 months. Still, a vaccine changes everything.
2. The virus mutates to an higher/lower CFR or higher/lower R0. I've read that corona viruses typically don't mutate that quickly, but it's still a possibility.
3. Demand will falter, it will be difficult to restart the global supply chain, and the global economy will fall into a death spiral. This sort of dark thinking is extreme and in my opinion, unlikely. This situation is not like WWII, where the vast majority of the world's manufacturing capacity was destroyed. Yet there are a lot people pedaling this idea. If you're in that camp, you should be stockpiling precious metal in your backyard. You're also reading the wrong blog.
Conclusions
If you're a friend or follow me on Twitter (@osmanparvez), you already know I've been advocating for weeks for aggressive measures to contain the virus or at least slow community spread. Our hospitals will be overwhelmed if exponential growth is allowed to happen.
It's appropriate to take personal or family precautions. Practice exceptional hygiene and social distancing. Check on your neighbors and friends, especially if they are elderly or have health issues. If you have the ability to help others, please do so, safely.
Make sure they have the supplies they need and are coping with isolation well. To keep up to date on what's happening in your neighborhood, join neighborhood email lists, Facebook groups, and NextDoor. It's a great way to connect in community without risking virus transmission.
With compassion, Boulder will get through this and emerge a stronger community. Remember, we're in this together.
Osman Parvez is the Founder and Employing Broker of House Einstein. Originally from the Finger Lakes region of New York, he lives in Boulder with his wife and their Labrador Retriever. He has been a Realtor since 2005.Osman is the primary author of the House Einstein blog with over 1,200 published articles about Boulder real estate. His work has also appeared in many other blogs about Boulder as well as mainstream newspapers, including the Wall Street Journal and Daily Camera. For more information, click HERE.
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The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties. House Einstein strongly recommends conducting rigorous due diligence and obtaining professional advice before buying or selling real estate. image: @Thedotter, @imkrisztian, and @Yulia_Gadalina
