The Play Button
The show must go on. It is (or will be soon, depending on your stance) time to get things going again. Time to turn the “pause” button off, and hit “play” again. If you missed yesterday’s blog on The “Pause” button, you can view it here.
So here we are. 75 Days or so since ‘chaos’ started. It’s been months since the Governor of Nevada instituted the shutdown, and we’re currently in Phase 1 of the reopening of the economy. Where do we go from here? While there is a lot of work to do of course, this will focus on what we are expecting in the housing market, as well as some general economy points.
Some are okay with how things have been handled; others, not so much. I’m not here to debate one side or another. That’s not my job, my space, or even on my agenda. All we know is we are here, we all want to move forward, together, and put this ugly time in our history behind us as efficiently as possible, which of course, is easier said than done. But how do we do that? Do we unleash the hounds all at once, or do we trickle things out? The answer, thus far, has been to let things trickle out. Some think that’s unfair or unjust, others can see the validity behind this.
This is not a foot race. This is not any race. The only race we are seeing is the race to normalcy, and the race to ensure survival. Humor me on this… could you imagine the pandemonium if things all turned on, like a light switch. Would our economy recover FASTER with this, or could this lead to issues? We are sitting right about 25% unemployment, which is a tragic number. However, how could we go from 25% less employees running businesses to fully restarting the economy. Systems would be overloaded. Especially with the levels of pent up demand for consumption.
Instead, opening up in “Phases” (a term that has been WAY overused lately, in my opinion) has been the agreed upon method for most of humanity; not just here locally, or in the State of Nevada, but all across the United States and the world. Think of the phases as a car race. What happens when you have a whole bunch of vehicles go from 0-150mph heading into a turn? Chaos! Instead, having them roll to a start keeps things more in line. That’s what we’ve been doing. Like it? Don’t? That’s not part of this debate.
Here is what we EXPECT to see in the near future. With regards to the economy, as I mentioned in part 1 yesterday, many experts are pegging a Quarter 3 rebound. Quarter 3 starts in about 45 days! They are not saying things will switch from bad to good in 45 days (remember, “phases”), but this is showing signs of strength, and more importantly, signs of HOPE. Furthermore, from a general economic standpoint, individuals predict that by 2021, much of our workforce will be back to work, with over 1/2 of the unemployed returning to work by next year.
On the Real Estate front, many models are expecting a 10-15% drop in transactions. That is definitely a large chunk of transactions. But it’s nowhere near some of the models that have predicted 50-60% lower. Many of the models that were predicting this large drops were using Italy and San Francisco as their baseline. We know there will be hard hit areas, but I think we all can also agree that Italy and San Francisco (Bay Area at large) are, in their own manners, microcosms of the world economy. Experts are also calling for a 1-2% increase in values compared to 2019. Has hard as that may be to believe, if you look at things now, we are down less than 1% for the year thus far with regards to Single Family homes and FLAT for all properties. The downturn of April erased the gains for the year, but even with the bad numbers from March and April, we are still seeing opportunity for growth in terms of value.
For 2021, the numbers look even better. Experts are calling for sales to increase 13-18%, wiping out the lower 2020 numbers, and see home values increase 3-5% nationally. If we used the 3-5% for single family homes here locally, that would put us at a level over $320,000!
While many ‘predict’ Interest Rates to remain low through 2002, if anything we’ve seen so far the last few months, rates will be jumping up and down. At the end of the day; whether you get a rate at 3.5% or 4.0%, the fact remains, this is far lower than the average rate over the last 50 years. My opinion: cheap money is to be had, and will be had.
Does this add up? That’s the question. I like to say there is a funnel to a sale. If the bottom of the sales process funnel is the actual closed sale, the top is Showings. Without Showings, we have no offers. With no offers, we have no pending sales. And with no pending sales, we of course will not have closed sales. So, I like to look at the top and focus on forward thinking indicators.
We know that things really shut down the second week of March. And looking at the chart below, you’ll see exactly this as it corresponds to showings. Looking at the chart of showing activity, we see a dramatic drop in showings from Mid March until Mid April. But right around the middle of April (April 12 to be exact), we’ve seen a dramatic shift up in terms of showings. This is for the Las Vegas area, and may not represent things on a national level, but the signs are good. There is strength in showings. Strength in showings WILL lead to more offers, which WILL lead to more contracts, and closed sales. So… are the experts right, calling for an increase in sales to end the year and into 2021? if showing activity continues the upward trend, then yes, we’re going to see great things in the future.
In closing… I don’t want anyone to think I’m glancing over what has happened to us as a society, and an economy. That’s not what I’m here to do. I’m here to hopefully provide hope, and statistics. I realize this is a very polarizing topic, and has been for the last 8 weeks, and will continue to be so into the future. I’m always up for a conversation… let me know what your thoughts are!