Real Estate Recession? Not So Fast

Only a couple of weeks ago we were wondering if there will be a recession because of the coronavirus. Didn’t take long to find out.

Even though we don’t yet know what we’re in for—as Dr. Fauci says, “you don’t make the timeline, the virus makes the timeline —we can start to think about the consequences for real estate markets.

First we do need to imagine what this recession will look like. If in fact the virus will peak anytime soon (in a matter of weeks, months?) we can be pretty sure that we’re facing a compressed but “normal” recession that has predictable outcomes. I think that’s what will happen, but it’s not too hard to imagine other scenarios where a larger catastrophe awaits.

A compressed but normal recession would look a lot like the 2008 recession, but faster, deeper and shorter. The chart below shows what that recession looked like from the point of view of consumer spending and job losses. Starting at the beginning of 2007, it shows by month the annualized change in retail sales and in job growth.

Retail Sales & Jobs During the 2008 Recession

The 2020 recession could easily see sales drop 20% and job losses go to 10% (16 million jobs). That will happen quickly. This can be seen by the quickly growing list of retail companies on bankruptcy watch. With government help a recovery can start soon after the virus has peaked, although nothing will be over by the end of the year. Our economy isn’t built for a quick bounce back to normal. Even a compressed recession will have a drawn-out and fairly modest recovery going deep into next year.

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