The Cal State Companies: Center for Real Estate Studies ¨ Cal State Properties ¨ Cal State Investment LTD Partnership
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REAL ESTATE INVESTMENT OUTLOOK SEPTEMBER
2020
The unanswered question now is: Where do we go from
here? The answer is hinged on three issues at least: (1) Can a second wave of
accelerating infections after the travelling and summer holiday season be
avoided? And if not, will regional and partial lockdowns be sufficient to
contain the virus? (2) Related to this, is the question as to whether a medical
treatment and vaccine will be available. (3) If
our economy is revitalized, will the strength of the economic recovery
be sufficient to restore the real estate investment markets?
The
combination of a fear of infection, public guidelines, mandatory lockdowns and
great uncertainty produced a sharp deterioration in economic activity with a
deep and widespread shock to our labor market. An unprecedented number of
workers (39% on average reported by the Organization of Economic Cooperation
and Development (OECD)) shifted to telework, pushing the boundaries of the
potential for this alternative way of organizing work.
Our jobless claims surged to around 6.9 million at the
end of March. The weekly average of initial jobless claims now stands at approximately
3 million, as indicated by the US Bureau of Labor Statistics. This labor market
trend is reflected in an US unemployment rate of 14.7% for April. In July, as
some lockdowns were relaxed and people returned to their jobs, the unemployment
rate dropped to 10.2%.
But the gap between the pre-crisis
level and the current level of real estate activity is still very wide. With
the resurgence of new infections, consumers have become more cautious and are
avoiding restaurants, shopping areas and entertainment events. In addition, the
vast majority of plans by states to relax the containment measures have been
suspended or new restrictions are even being imposed. This also reflected in
the industrial production number for July, which declined from approximately
5.5% in June to around 3.2% in July, indicating that economic activity appears
to be plateauing.
Given the heightened uncertainty about the longer-term
impact of the disease on the real estate markets, we still, however, prefer
lesser cyclical real estate markets, such as residential income, but are
keeping a hold designation on most
multifamily markets . This integrates a sharp earnings contraction for the
second quarter 2021 based on calstatecompanies Market Cycles research, with a lukewarm
recovery during the third and a likely acceleration into the fourth quarter.
And it compares with 2008/2009 during the Great Recession where earnings
retreated on a similar scale. It is therefore fair to assume that we will have
strong earnings momentum building up going into 2021, as seen in the aftermath
of the financial crisis
Calstatecompanies publication Market Cycles will keep
you informed as the real estate investment market changes. It will give you a
two-year head start on when and where you should be investing. Our quarterly newsletter gives a clear, concise
analysis of over 175 different markets across the country, and makes timely
recommendations on WHERE and WHEN to buy or sell in Pockets of Opportunity.
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. To learn more about the Center, please visit our
web site at http://www.calstatecompanies.com
UTUBE: https://youtu.be/868wrjNPQFM
