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Contact: The Center for RE Studies For:
Immediate Release
REAL
ESTATE INVESTMENT OUTLOOK JUNE 2020
Why was the real estate industry blind-sided by the
coronavirus and how will we know when it will end?
There has been no previous occasion for this kind of
downturn of economic activity. Recessions or severe economic slowdowns are
usually caused by the exchange between economic and/or financial differences
during the period of expansion. According to a leading real estate research
company, calstatecompanies, this time it is very different because the
underlying cause of the downturn initiated from external economic and financial
domain: a highly contagious new coronavirus that has been spreading fast since
the beginning of the year.
Our government has responded by aggressively
curtailing economic and social activity in order to suppress the further spread
of the virus as quickly as possible. Thus, we are seeing the first-ever
recession by government decree – a necessary, temporary, and partial shutdown
of our economy to prevent an even larger humanitarian crisis which is having a
devastating effect on real estate investments.
Since the beginning of March, approximately 40 million
workers have lost their job in the USA, with 18 million being laid off temporarily
due to the lockdown. According to the US Bureau of Labor Statistics, most of
the 18 million workers are in the lowest income brackets, with an average
weekly income between $300 and $1,100. Under the assumption that this temporary
unemployment lasts around one quarter, private consumption could be lowered by $150
billion, representing a GDP loss of approximately 3% for a given consumption
rate of around 70% of disposable income. It is absolutely paramount for a
sustainable economic recovery that the predominant majority of these job losses
are temporary once the lockdown measures are lifted. Reemployment, especially
in service-related sectors, will return but only gradually.
The aggressive policy support is expected to release
domestic demand. Persistent pressures in the labor market and mounting external
risks have driven the country’s leadership to stimulate the domestic economy.
Infrastructure spending still remains the main growth stabilizer. We expect the
fiscal deficit to expand meaningfully by a significant increase of percentage
points of GDP rates in the near term. Credit growth is expected to firm up
throughout the year, with a notable amount of funding likely to be directed
into the infrastructure sector. However, the above-mentioned stimulus cannot
fully offset the economic damage throughout the year.
There is agreement among economists on the need to
stimulate growth once the epidemic is under control. There are concerns about longer
lasting impacts that hamper the recovery (affected sectors, lack of confidence,
and increase in household savings during the lockdowns). Stabilization plans
will therefore gradually have to give way to growth stimulation plans.
Given the rapid and large economic and fiscal policy
response and in the absence of major imbalances that would require a prolonged
period of purging and modification, we expect the real estate investment
markets to transition from intense near-term anguish during the virus suppression
phase to a gradual healing over six to 12 months
ABOUT THE AUTHOR:
Eugene E. Vollucci, is considered to be one of the foremost authorities on real
estate taxation and investing and has authored books in these fields published
by John Wiley & Sons of New York. He is the Director of the Center for RE
Studies, a real estate research organization and President of
calstatecompanies. To learn more about the Center, please visit our web site at
http://www.calstatecompanies.com
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