Just last week, we came across an advertisement on the Fox Business site that read:
"Real estate will boom once coronavirus threat is gone
Go ahead, put your house on the market."
We thought, sure...whatever. Ads are ads. But then we realized this wasn't an ad.
This was a supposedly "serious" opinion piece written by Rogers Healy, owner, and CEO of Rogers Healy and Associates Real Estate and Healy Property Management.
For someone who, in the article, admittedly averages 14 hours a day on his phone logging in screen time--engaging in semi-intelligent media, we suppose--it comes to show that very little matters if you have dangerous blind spots in your thinking.
First off, to even say that real estate will immediately boom once the threat of COVID-19 is terminated is to make quite a few propositions that are either myopic or can't be substantiated with reasons beyond pure speculation:
- It assumes that real estate is isolated from the rest of the economy and the fundamental conditions (unemployment, financial market instability, inflationary pressures, etc.) that threaten it.
- It proceeds with a kind of certainty that even the smartest of investors and financial institutions wouldn't dare claim.
- It deceptively reduces the total potential economic impact of COVID-19 to a mere handful of small-scale problems.
It's the kind of message you'd expect from an advertisement, but not a high-quality opinion piece.
So, What's Wrong with Healy's Arguments?
If you read the piece, you can see right through the positive messaging and straight to the flaws.
- "...real estate professionals have been working behind the scenes to ensure that the industry remains a safe haven amidst an upside-down world."
- "There are still an incredibly large amount of unknowns out there, but we are doing our best to operate…"
- "Real estate professionals are working tirelessly behind the scenes to keep up their social media presence and to strengthen their strategies."
The Message: you shouldn't worry about the real estate industry because industry professionals are working very hard to keep everything safe.
The problem with this view is that real estate isn't an isolated industry.
It's connected to other sectors and industries, say...banking and finance (for starters).
It's also connected to certain fundamental factors, a big one being this thing called employment--you know...having a job to pay your mortgage (or not).
A Dose of Reality: Have you considered that due to COVID-19's current and anticipated economic impact, that banks are pulling their funding from several potential buyers, and that several homes in escrow are now falling like flies?
In some areas, unless you have a 700 FICO score and a W2 job, no bank will want to finance you! What might this mean for the industry? Real estate prices might sink anywhere from 30% to 60% depending on location.
Healy was right when he said, "as soon as our world begins to shift back into normalcy, the market will be at its height." The road to normalcy, however, may take a much longer time than he suggests.
He's also right in saying that "momentum is building" and that people are eager to sell their homes or buy new ones.
But he can't be any more wrong to say that "there is no need to fear putting your home on the market," and to "get online, shop for your new forever place, and get excited."
That last line, by the way--the "get excited" part -- needs special mention, not only for its pure stupidity, but for the way it reads: its prosaic cheesiness is quite bad, even for an advertisement, which Healy's piece is supposedly not.
So, What's Holding Back Real Estate (according to Healy)?
According to this property management CEO, COVID-19 which wreaked havoc on the global economy has this effect on real estate--rather, he says it indirectly:
- "...touring homes is currently impossible…"
- "Prospective buyers will most likely remain hesitant to buy before they can physically tour a home ."
In other words, Healy thinks the problem is a lack of access due to the coronavirus lockdown. It's not that;
- Nearly 17 million jobs were lost over the last few weeks.
- It's not that the Fed projected a potential 30% unemployment rate (exceeding the Great Depression).
- It's not that most buyers may not be able to secure financing.
- It's not that homeowners who may find themselves jobless won't be able to afford their mortgage payments.
- It's not that savvy sellers, anticipating a severe drop in real estate prices are considering holding off on selling their homes.
- It's not the possibility that the Fed's response to buoy the economy may cause the dollar's purchasing power to plummet (i.e., inflation).
No, these aren't the issues, according to Healy's "opinion piece." For Healy, the problem is that buyers are experiencing a lack of access to home tours. That's how he sees it. The small stuff. Not the big picture.
He has a solution for that too: "One benefit of Americans being home all day is that they are online all day long. ALL DAY."
So, what's the solution? "Real estate professionals are utilizing virtual tours to keep buyers excited."
Considering how COVID-19 can harm home buyers and sellers economically, there's no need to fear, and there's every reason to get "excited" because, as Healy puts it, "virtual tours" are available.
That solution says everything.
What You Need to Think About Before You Buy or Sell a Home
Right now, we have the highest level of pending mortgages on record.
Typically, this wouldn't be a bad thing. But in this case, it's because banks are pulling out.
Several mortgage banks are at risk of insolvency. Why? Because many are overleveraged with excessive margin.
In a recent Zerohedge article, the editors write:
"First, it was AG Mortgage Investment Trust which on Friday said it failed to meet some margin calls and doesn't expect to be able to meet future margin calls with its current financing. Then it was TPG RE Finance Trust, which also hit a liquidity wall and could not repay its lenders. Then, on Monday it was first Invesco, then ED&F Man Capital, and now the mortgage mayhem that erupted as a daisy-chain of mortgage REITs suddenly imploded, has taken down MFA Financial, whose crashing stock was halted after the company reported that "due to the turmoil in the financial markets resulting from the global pandemic of the COVID-19 virus, the Company and its subsidiaries have received an unusually high number of margin calls from financing counterparties, and have also experienced higher funding costs in respect of its repurchase agreements."
So, what does this all mean? If this isn't contained, the US housing market could fall 60%!
But here's the bigger picture. The economy is on the verge of a recession, so potentially deep, we can't imagine it. This will likely be the case if the coronavirus pandemic doesn't terminate by summer.
The inability to assess the situation from an economic standpoint is precisely why financial news media outlets have been describing the current conditions stemming from COVID-19 as "unprecedented."
Short sales are likely to be all over the place. On top of this, we have a looming inflation threat, further weakening the dollar. St. Louis Fed's James Bullard forecasted that the unemployment rate can reach upwards of 32%--far beyond the Great Depression max level of 24.9%.
Frankly, many economists are calling for Depression.
With the stock market, real estate market, and the dollar losing value fast, the demand for gold as a safe haven will surpass available supply.
This will be good for investors who buy gold now. Not so good for the majority of investors who get in late or don't buy gold at all.
There'll be nothing left to buoy their wealth. And this is a position no American should find themselves in.
There's a saying: it's better to mistake a stone for a bear than a bear for a stone. Healy's position takes the latter approach. And following Healy's optimism at a time when caution reigns supreme will only get you mauled.
As we said earlier, Healy's opinion piece reads like an advertisement because it is, essentially.
If you take the wrong course, companies like Healy's may benefit. But only you take the risks or sustain the losses. Hence, he has no "skin in the game"-- it's your skin that's on the line.
And when your "skin," or rather "wealth," is on the line, you hedge. You seek safe-haven assets that may also provide growth. That's what precious metals are designed to do. Ultimately, it's your choice and your money. We're just suggesting a more prudent course of action.