Impact of Economic Downturn on Housing

On today’s episode of Business and BBQ, Tim talks to Rick Sharga, President and CEO of the CJ Patrick Consulting Company, about what he sees going on at the national level regarding the housing market. Rick brings his experience to the table to make predictions about the financial state of the country.

Rick is generally hopeful for the future because the housing market is historically pretty good at bouncing back. Until bond-holders are more certain, mortgage interest rates are likely not going to continue to drop. He also believes that the treasury will not go into the negative, but that many banks are putting forth deferment programs to help alleviate pressure on loans. Rick speaks to the fact that when the capital market starts to seize up, it has a ripple effect on everything else.

In addition, the two talk about the impact on markets across the globe. The takeaway is that whenever the lockdowns let up, the housing market tends to bounce back. There will be some displacement in retail space, Rick proposes, as a result of the move to digital and a loss of business for three months or so. Fundamentally, we will probably see some shifts in how business is conducted in the coming months. We will also probably see an uptick in manufacturing.

Finally, Tim asks Rick about his opinion on the effects of the shutdowns on a variety of industries, from lodging and retail real estate, to healthcare and manufacturing. And as the economy restarts, small businesses are going to do extremely well, assuming they will be able to weather the downturn.

A few things Rick points out at the end about the housing market:

1. We should not freak out at the housing numbers when we come out of this.
2. It will probably be June before we see the market rebound.
3. There will probably be unusually high sales in September.

Timestamps:

[2:45] — Tim introduces Rick Sharga

[4:00] — Rick to release report on the historical impact of pandemics on the housing market.

[6:45] — Will the bond market bounce back, too?

[12:45] — Does the government now have the precedent to restrict your right, as a landlord or

landowner, to evict at the drop of a hat?

[15:45] — Fannie Mae and Freddie Mac are engaging in some deferment programs as well.

[17:00] — Impact of borrowers’ financial hardship on loan servicers.

[23:45] — The difficulty of lenders trying to get their hands on warehouse lines of credit.

[28:00] — Impact of the shutdown on people with a lack of financial wherewithal.

[31:30] — Consumer debt markets (credit cards and auto loans).

[34:00] — Automakers are taking action to stem the market freeze.

[37:00] — What happens to commercial real estate after businesses have converted to digital?

[42:30] — The impact on healthcare.

[44:00] — Will there be public works projects going forward?

[47:00] — Are the airlines going to be more regulated after this?

[50:00] — How are individuals weathering this storm?

[55:00] — Watching educational institutions adapting on the fly.

Key quotes:

• “If you go back to every recession the market has had since WWII (except the Great Recession), the housing market is what brought the economy back.”
• “The yields on treasuries are at historic lows.”
• “There is some adjustment that happens when you start talking about negative interest rates.”
• “The buyer profile is going to be a little bit fuzzier than it was going into the pandemic.”
• “It’s much easier to work with a borrower before they’re in default than it is to try to fix things once they’re in default.”
• “People underestimate the disruption to lending that would happen if forbearance programs are engaged by borrowers large-scale.”
• “Candidly, if it seems like the government is making it up as they go, they are.”
• “The exception throws the whole system [of the loan servicers] out of whack.”
• “When you have that kind of short-term disruption, I think everybody hurts.”
• “AirBnB is very vulnerable right now.”
• “Some people are just hoarding cash right now.”
• “Schools are struggling mightily to convert to teaching online.”
• “We will have some fallout from this, but it’s going to be a while before we see foreclosures.”

Contact and Partners:

Tim Herriage can be found at www.timherriage.com

Rick Sharga on linkedin.

Follow him on Twitter @ricksharga.

Follow his company at www.cjpatrick.com