COVID-19 Round Two: Some Neighborhoods Will Weather the Storm Just Fine
During the course of this pandemic, there has been one impressive constant; the housing market has been surprisingly resilient in the midst of a turbulent economic storm. Notwithstanding unemployment numbers we haven’t seen since the Great Depression, home prices are actually surging as financially secure prospects engage in bidding wars over a limited inventory of homes on the market. However, there is some concern that the housing market won’t be able to repeat its impressive performance as COVID-19 is resurfacing in many parts of the country at the same time as federal support for states’ unemployment benefits are slated to end and major corporations are announcing that tens-of-thousands of jobs will be cut. The good news is that the housing market will likely survive this as well.
First, we will briefly identify the significant threats to the housing market vis-à-vis the overall economic health of the country. The additional $600 per week in unemployment benefits from the CARES Act is currently slated to end on July 31, 2020. Interestingly, when people lost their jobs as a result of COVID-19, their spending increased by 10% as a result of the financial boost the CARES Act provided (normally, it drops by about 7%). To be clear, people who need the $600 a week are unlikely to be in the market for a house, but their economic instability can have an impact on other people’s economic stability.
If the end of supplemental unemployment income can have an impact on other people’s economic stability, then massive layoffs will have an even larger impact. Most economists expect an unemployment rate between 11% and 15% through next year. This week, LinkedIn announced a 6% reduction in their workforce, Wells Fargo announced that tens of thousands of jobs would be cut, United Airlines announced they would let go of 46,000 employees, and American Airlines suggested they may cut 25,000 employees. Moreover, Men’s Warehouse and Jos. A. Bank announced they would be cutting 20% of their workforce and shutter the doors to 500 locations. J.C. Penney eliminated 1,000 positions, and Macy’s eliminated 4,000. Finally, nearly 100,000 small businesses have closed their doors for good as COVID-19 claimed more financial victims.
Finally, it is incredibly likely that Los Angeles is headed for another lockdown. Mayor Garcetti has intimated as much, as COVID-19 cases are spiraling out of control in the county and hospitals are reaching capacity.
Notwithstanding these facts, individuals with stable incomes should not worry too much. This is not to say that what is going on isn’t terrible, but we are suggesting that the housing market has proven itself to be robust in certain areas. These robust areas are typically locations that draw a more affluent crowd; that crowd typically occupies a sector of the workforce that is less impacted than the lower income sector of the workforce. Thus, areas like Studio City, Sherman Oaks, Encino, and Tarzana have weathered the storm once, and will likely weather it again. It would be foolish to assume there won’t be bumps along the way, but overall these areas will retain their value.
At the Chernov Team we understand that knowledge is power, and knowledge of how the market will behave in the future is powerful knowledge indeed. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.