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Adjusting to the economic impact of the ‘new abnormal’

May 22, 2020
By BOB & GERI QUINN - Homing In , Cape Coral Daily Breeze

It seems that everywhere we turn we are being bombarded with opinions by various experts and pundits about being in another "new normal." This was the popular phrase used to describe the fallout from the housing market crash during the Great Recession, and the slow-to-no economic growth and period of 0 percent interest rates we were told to get used to during the slow motion train wreck of home foreclosures and short sales. To borrow a phrase from the 1974 hit movie "Young Frankenstein," we would tend to argue that the COVID-19 social distancing economic shutdown crisis of today is more of a new "Abby Normal," than a new normal. We say this because there is a pretty good chance that there will be very little that is "normal" with our lives for the foreseeable future. This does not mean we will not recover from this crisis, but it is likely to be more in the form of a "new abnormal."

So where will the effects of this pandemic leave our local real estate market? At this point we are noticing a drop-off in closed home sales in April and May compared to last year, but nothing even remotely like a complete collapse in sales. As we have been noting, there has been a recent rebound in showing appointments, which is likely a good indication of steady and potentially increased sales in the upcoming months. We are also experiencing an increased volume of inquiries from potential out-of-town buyers via the Internet, which should also bode well for future sales.

One thing that has remained the same both pre- and during COVID-19, is that the first sign that a seller has their home overpriced to the market is that they are receiving little to no showing activity from potential buyers. We seem to have moved well past the point where we could say the lack of showing activity, be it in-person showings or agents wanting to do virtual video previews of a home, was the result of the social distancing shutdowns. Although real estate was deemed an essential service during the shutdown, there was definitely a slower period for activity in April, but the local real estate market has been "back open" for business for a good month now. As a seller, no showings and no offers, most likely equals overpriced.

In a broad overview about the new abnormal in a COVID-19 world, we have observed a wide variety of expert opinions of how this will play out in the economy and the housing market, ranging from unbridled optimism that an economic recovery is just around the corner, to dire warnings about a long, drawn out depression-like recovery. The optimistic theme from the housing market experts is largely based on the fact that the market was so strong prior to the virus shutdowns, with a tight supply of homes available for buyers to choose from, that the end result will be pent up demand leading to the next leg up of a housing boom. There is also the thought that people are going to be on the move from larger metropolitan areas to places like Southwest Florida. Anecdotally, we are currently working with a buyer from a northern state whose governor has continued to impose severe shutdown guidelines in the face of growing protests, and one of their reasons for wanting to buy a home here was to have a place to "escape to," if needed this coming fall and winter. These optimistic housing market experts seem to largely dismiss what is currently happening in the economy and the job market with unemployment.

For the other side of this equation, we will turn to some quotes from a recent edition of the weekly newsletter, "Thoughts From The Frontline," put out by John Mauldin of Mauldin Economics, which provides economic and market analysis and commentary. A well-known economist and strategist, David Rosenberg of Rosenberg Research and Associates Inc., has a much more pessimistic view of a COVID-19 recovery as quoted in Mauldin's most recent publication. For some background, Rosenberg rose to prominence as the chief economist at Merrill Lynch back in 2005, when he put out an early warning about the growing dangers of a bubble in the U.S. housing market. He comes down on the side of those who believe the experts anticipating a recovery this year are delusional, in large part because he thinks many of the job losses will be permanent and probably half of small businesses will fail. He thinks we are in an outright depression and that it will produce permanent behavioral changes in consumer spending and savings patterns. When it comes to the massive amounts of money being poured into the economy by the federal government and the Federal Reserve, in what many pundits are calling "stimulus," he considers it to be more like "life support." Rosenberg feels it has been more about trying to contain the damage, than bringing the economy back. Despite these views, when it comes to investing, he indicated that he is not necessarily "running for the hills, but running to different hills."

Another interesting point from the May 15 issue of Mauldin's newsletter was made by Jim Bianco, president and Macro Strategist of Bianco Research L.L.C., and a frequent guest on major business networks and in major financial publications. Bianco discussed what he calls "The 90 Percent Recovery," stating that even as businesses reopen and some level of economic normalcy returns, it is likely to be significantly less than what existed prior to the COVID-19 shutdowns. His take on the recovery is that even if we get a 90 percent recovery, which he considers as optimistic, it will still be an economic disaster relative to the recent past and also when compared to our last recession.

On that note, here is a brief update and comparison of the number of closed sales in the Cape Coral single-family home market. In the first 10 days of May, things got off to a slow start as there were only a total of 84 closed sales in the Cape, for an average of 8.4 closed sales per day. By comparison, there were 144 closed sales, for an average of 14.4 sales per day, over the first 10 days of March. This was followed by 151 closed sales, or an average of 15.1 sales per day, in the first 10 days of April. The positive news is that despite being lower than a year ago, the number of closed sales in April came in better than we were projecting. We will have those results for you next week.

Also, the number of closed sales in May were picking up some steam in the middle of the month, so although they will almost certainly come in well below the 574 closed sales posted in May 2019, they should finish much better than indicated from the first 10 days of this month.

In conclusion, based on the interest we are seeing in the Cape Coral and Southwest Florida real estate market at this point in time, we continue to hope that our market will end up being "one of the hills" that people run to for cover.

(The sales data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, Florida, as of May 17, 2020. It was compiled by Bob and Geri Quinn and it includes information specifically for Cape Coral single-family homes, and does not include condominiums, short sales or foreclosures. The data and statistics are believed to be reliable, however, they could be updated and revised periodically, and are subject to change without notice. We have no affiliation with Mauldin Economics, aside from being longtime readers of its free newsletter, and we do not receive any benefits from them. The Quinns are a husband and wife real estate team with the RE/MAX Realty Team office in Cape Coral. They have lived in Cape Coral for over 40 years. Geri has been a full-time Realtor since 2005, and Bob joined Geri as a full-time Realtor in 2014. Their real estate practice is mainly focused on Cape Coral residential property and vacant lots.)



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