Guest Post by Realestatepup
The fall out from this will take 24+ months to rear it’s ugly head fully. By that I mean the wave of first commercial foreclosures, then residential.
Commercial was already hanging by a thread, with brick-and-mortar stores shuttering and the bankruptcy filings of JC Penney, Forever 21, and J.Crew looming. Macy’s isn’t doing much better, and KMart gasped it’s last. Sears is going to go poof too.
This will leave huge “anchor” stores empty in malls that are already struggling to fill spaces.
Then the secondary effect of “telecommuting” through this crisis will emerge. My son works for a company that provides “help desk” services for companies. He has not stopped working through this but of course is now 100% work from home. Guess what? He is planning a move to TX next year and his employer said “keep your job when you go, why not?”
Thousands of companies now realize all that expensive office space is a waste of money. Meaning they WILL NOT BE GOING BACK. Disney has already said they are slashing their office space use significantly.
This will in turn spark defaults in the office space sector. These buildings rely on janitorial and maintenance staff. These people will be laid off never to return. Any secondary businesses in them, like small restaurants, nail salons, hairdressers, will see their foot traffic business dry up and they will leave too.
Commercial lending has been propped up for a long time on low interest rates and crazy loose terms. Borrowers have just been recycling their debt every 2 years, many on interest only notes.
Then we move to the residential foreclosures. When people do go back to work (if they do), they will now be, most likely, 4-6 months on payments of their mortgage. Their lender gives them a forbearance and tacks it on the end. Ok. But what about the water, sewer, and taxes? Insurance? If you don’t keep up on your homeowner’s and the bank finds out, they can and will foreclose on you in most cases.
And condos…are people keeping up on their HOA fees? HOA’s are in first position and can foreclose for back fees. This is extremely problematic for associations that are small and depend on the steady flow of monthly fees to pay THEIR master insurance and maintenance. Larger complexes typically have a reserve, but this will go bye-bye fairly quickly. If some of these units are rentals and the tenants are not paying rent, it is unlikely the owner will pay HOA. Good luck evicting the tenants through all of this. In some complexes the tenant ratio is very high, 50% or MORE.
Then we have the multi family sector, which has been also massively overpriced and propped up by historically sky-high rents, that people are not paying. Please understand that tenants in these places tend to be service industry workers. Hotels, bars, restaurants. The places that are closed, many are gone forever. And when we do open, it will be with restricted customers anyway, further limiting tips for these employees. Many will just stay on unemployment and ride that out to the end because it’s more money. And not pay their rent out of either, sometimes even if they can.
Lenders just recently tightened up their lending criteria. Credit scores must now be 700 minimum for FHA (previously 650), with higher deposits required.
It is a good bet that credit scores have already tanked because people are not paying their credit card bills or car payments. So a huge sector of the market will be gone in a instant.
Cars. Ah yes…good bye 72 month loans with no money down. And so used car prices will jump significantly, meaning most people will have to buy cheap clunkers that they cycle out of every 1-2 years rather than fix.
What people don’t realize is we are just overpriced for everything in this country. Housing, rents, cars, food. The downward pressure of things to cost less will eventually happen, it’s just going to meet resistance and take longer.
It is a fact of life that when demand goes down, prices go down.
If we bring back manufacturing, it can never be like it was in the 70-80’s. Plush union jobs with high wages and fat benefit packages. It’s going to be a decent, living wage, with probably some kind of employee retirement participation plan and medical, and that’s it. People will choose to take non-union jobs that actually PAY over zero work but marching in a picket line. The cost of these goods will go down due to less demand and less cost to make them here over time.
Making 15 bucks an hour to work in fast food will be considered a joke, as now these companies see robot order takers and less in-dining demand will mean smaller store footprints, meaning less humans to clean the tables, mop the floors, and take out the trash. I seriously would not be surprised to see McDonalds no bigger than a kiosk where your food is just passed out a sliding drawer at the drive through.
Movie theaters are already on the way out too. Home viewing choices continue to rise, and the virus lockdowns has seen “first run” features being offered at home for $19 bucks for the whole family. That’s a bargain in comparison to 15 or more a person. This will start happening more and more, with promotion being more event oriented rather than opening-night oriented. The days of the mega-plex are over. I think they will pivot to a smaller, more luxury themed type of theater with food and alcohol package plan type experience.
The very good thing that may come out of this? People are already getting outside more, which will hopefully lead to more actual activities with friends and family.
All of this bullshittery and assholery manipulation will mean people will realize that online platforms can be used for a lot of evil. And govern themselves accordingly. Change will happen, it will just take time.
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In my defense…I did try to get every Burning Platformer to vote for this guy. But no.
Donkey,you need more then one line/subject to run on9and win),he may have a chance now.
I watch (and for most part dislike)first run movies for free streaming on the net.I have the rare times seen one I really like will when reasonably priced by the dvd,just to keep em a little in business.
Many malls now have karate schools/doctors offices and rock climbing ect,.new business will emerge,especially if we can ramp back duplicity in rules and reg.s,will take time but soon many govt. enployees lives will literally be in fdanger they keep coming up with nonsense/bs ect.
I was being sarcastic but, now that I think about it, I doubt he could be any worse than any other current criminal in DC.
I want to know when we get to see this guy.
That’s what I thought! Sit yer monkey-ass down.
here is what will be hot this summer -Drive in movies
Now working as a part-time cook, my wife earns just shy of double what she was making full time. Unemployment covers most of her lost hours and she gets the $600 Federal benefit.
We got three month deferrals for the mortgage and SUV.
We are rolling in dough, have more time for ourselves, and having a grand time with this lockdown crap.
Make hay while the sun is shining. Or not.
When the Petro-shekel collapses ( how much freaking longer can that charade continue, eh?) is when the fun and games ceases and The Hunger Games commences.
No, really, 22WM, enjoy the Happy Time.
Civilization itself is hanging by a mostly old and quite frayed, I’m afraid, thread.
Thank you sir.
Good Mormons know all about the Constitution/Civilization hanging by a thread.
https://books.google.com/books?id=bCxOAAAAYAAJ
https://www.churchofjesuschrist.org/study/ensign/1976/06/i-have-a-question/did-joseph-smith-say-that-the-constitution-would-hang-by-a-thread-and-that-the-elders-would-save-it?lang=eng
If tenants are evicted from their homes where would landlords find new tenants? The people that are still working will most likely stay where they are unless they get a better deal somewhere else but you still would gave to find a tenant to fill that vacancy.
In the early – mid 80’s, housing prices in OK plummeted, sometimes as much as 50%. Mortgage companies were foreclosing right and left and scrambled to find someone to pay $45K for a house with an $80K mortgage. They were happy to unload the property at almost any cost and in many cases, took the loss and did not even go after the original mortgagee.
Why would you want new tenants?
They wont be paying either.
Great analysis.
People really need to be thinking about what the world is going to look like moving forward because it certainly isn’t going to resemble the one we just buried.
I agree it was a great analysis, REPup. I would disagree a bit when you say:
“Plush union jobs with high wages and fat benefit packages. It’s going to be a decent, living wage, with probably some kind of employee retirement participation plan and medical, and that’s it.”
The union jobs have been losing the ‘plush’ little by little for decades, and the large majority of unskilled factory jobs already fail to pay any where near a “living wage”….and that’s before the coming added burdens to effect business a la COVID-19
Thinking about what the world will look like moving forward:
annuit coeptis novus ordo seclorum <<—–=== lotta plannin went into this
The unions still hold powerful sway over our politics…so with the loss of the power so goes the power the union lobbyists hold over politicians.
After the shake out of this corona bullshit there will never be a better time to introduce term limit for congress and a limit or even better elimination of lobbying.
I am starting to see a gradual turning of people who see the truth. Of course fear is prevalent, but it is now fear of standing up to these fascist control freaks, not fear of the virus.
We are controlled when we think we are alone. But as the overwhelming support of the salon owner in Texas shows, we are not.
I hate Qwest and every company connected to it…If a man won’t work, he should not eat. Gov’t programs are exposing a lot of Elite and Maggots who don’t work. Instead of giving them food, they should be making Victory Gardens.
Thinking about all those people getting unemployment and forbearance but prob not saving a nickle. When that music stops…
Those people can’t save because everything is so damned expensive. Everything is priced to the point that it takes all that one makes to get by. When things break or accidents happen one gets trapped in an endless cycle of trying to pay off debt.
Not everyone can be a doctor or lawyer or (100k + per year job).
A pack of cheap seeds at Walmart is 50 cents.
hey pup,
how are re prices up there holding up since the covid/market collapse/fed prop up?
have you already seen a decline,or do you just know it’s coming?
i just sold a piece of my mom’s property & i know i left $ on the table b/c i wanted it to close quickly–
i have a piece of my own that i was going to go 4 top $ but now?
Residential RE prices here in New England remain high. This is due to a couple of factors. First, there is hardly any inventory. Homes going on the market are selling in days at full price. People are holding off selling, the spring sales simply are not happening. Second, those who should be selling are not, as they are getting 3 months reprieve on their mortgages. I see the spring real estate market happening in September, with prices in free fall. Or so I am hoping, as I am renting now and have to move within a year.
Correct. Prices still “remain” high with limited inventory. But in my sector, foreclosures, there’s an trend. The cash investors are getting much, much more careful with what they pay, as they are concerned, and rightfully so, about what their fixed up property will be worth when they put it back on the market.
The issue has been festering for a while: Low income buyers using FHA/USDA/state funding (here it’s MassHousing). Given the bar has been raised for low income borrowers to practically cut them out, AND these are most likely the people that are unemployed, AND there is not a mortgage company in the world that will give you a mortgage based on unemployment benefits no matter how high those may be, a huge chunk of the buyer pool is gone.
Flippers generally, GENERALLY are targeting a certain buyer audience. A smart flipper will purchase easy to repair homes that they know will sell to the largest buyer pool looking. These, right now, are simple, smaller homes that target the “first time” buyer pool. Which is gone.
Every single agent that I have talked to that is still working with buyers, those buyers all have credit scores above 720, and have at least 10-20K to bring to the table at closing.
That is not the average FHA buyer. They generally are a 650-700 score with only 5-7K to put down and require the seller to pay closing costs. That is not someone that can weather any kind of financial storm.
I have seen the “days on market” rising steadily, although this has been the case since January anyway.
Certain sectors ALWAYS stay steady and are hardly affected, those are not the canaries in the coal mines. In MA these are the smaller, western towns that are always hit first and hit hard, then it moves east, and finally takes root in the poorer communities of the Boston area…Dorchester, Roxbury, Jamaica Plain.
I would also like to point out that those $600 “emergency” federal payments do not have the taxes taken out of them. How many people are prepared to with hold the taxes? ZERO. This mandate expires on July 31, but it probably will be extended. What happens when this extra money effectively puts people in a higher tax bracket or now they didn’t with hold money, most likely didn’t save any of it, and now owe?
Because we don’t know the true fallout of employment until things actually do start to open, we can’t see the full picture. But we can take the factors all together and come up with some likely scenarios.
Also, when you are ready to buy, give me a ring. I fight tooth and nail for my clients.
CO,feel you are right about New England,am watching prices in the Hampster as I am looking for a place with more acerage,there are a boatload of forclosures listed but need to if interested look at the towns finances at least pre beer virus to see if they can handle a budget.One does not want to buy property and have taxes double and then need to burn down the city/town govt.!
Same here James. When I add in filters to real estate sites for the southern half of NH ( 5+ acres), there is really nothing available now.
manufacturing itself might come back here but it will be massively automated,don’t count on those jobs–
4 every 10 jobs that left,we’ll be lucky to get 3 back but those 3 will produce more than the previous 10 employees did–
The master mechanic I work for is slammed with work.
1/3 of the shops in town are already out of business and yet people are blowing their stimulus/unemployment on fixing their shit-boxes or upgrading to a slightly better used car.
Random thoughts and observations, synapses firing around Foamy’s grey matter…
Old School, because, well, Old’s Cool.
Mammy & Pappy were conservative. Ditto their folks; me paternal and maternal Abuelos.
As young adults with a family of children during the 1st Depression, lard sammiches were grub.
Hand me down clothes, and scratching out a lower middle class living.
Stretch a dollar. Save like a MFer, and live within your means.
Enjoy an occasional treat, but spend wisely.
And get TF out of debt ASAP.
Well, during the recent stock booms, housing booms, dot com booms and busts,
many people wanted to keep up with the Jones’s, and did so, by borrowing easy money on credit.
For all kinds of toys.
Especially, if they had some equity in their crib.
Debt. It’s the American Way…one friend was overheard saying.
Perhaps.
-For a large purchase of an investment / critical need that would appreciate over time; like a primary residence.
-Not depreciate,
like a new car, boat, motorcycle, etc.
More like a modest home, with slow, casual upgrades and improvements with savings,
after, or while simultaneously paying down the mortgage principle ahead of amortization schedule.
A used car has 4 wheels that’ll get you from point A to B, usually just as well as the new, fancy,
latest & greatest status symbol financed over a 7 year loan.
Here’s the point.
All those years, of saving, paying down the mortgage to gain freedom from being a debt slave…
-Depriving oneself of most of the luxuries the shooters and vain ones like to display…
It was a strategy, as advocated by parents and grandparents of the Depression, and their experiences
taught valuable lessons they imparted to their offspring.
Some of the kids learned it.
The ones who didn’t, and couldn’t master the discipline of NOT living paycheck to paycheck,
are the ones who are shackled in slavery to either: No Savings, and / or large debt that will be defaulted on.
Phock it. Not gonna pay it. It’s Corona Virus’ fault.
Ahh, but that trashed credit rating that follows a default around for a few years just about torpedoes
any chance of a willing lender to oblige a desperate borrower.
And those Savers? Those fools, during times of easy money?
Free and clear on the house. Just utilities, annual property tax, and insurance.
A 10 year old used car, with low miles and in very fine condition. They are out there.
Found one. Paid in cash.
After the mortgage note was paid off, then the kitchen, bath, and rec room upgrades were done, for both
enjoyment as the owner, but also for the ROI those projects typically produce.
And, all home improvements, like the used car, were paid in cash. No loan. No debt. No slavery.
Food and fuel.
The 2 largest expenses on a monthly basis. But even now…
Fuel? As in gasoline? Supply glut, from Shelter in Place.
Like one meme from Feral Irishman said,
“Lower gas prices during a quarantine is like a bald guy winning a comb, as consolation prize,”
Years ago, I talked with a boss, who was paying me a pretty good wage, as the world started going topsy turvy
round about the 1st 30% haircut to me IRA…the Dot Com Bust.
Me: “How do you see this playing out, in the years to come? With the $USD tanking, but still the best currency out there, with reserve status.
And, with the subsequent housing crisis, and now Corona destroying Joe Lunch Bucket?”
Him: “With all the political, economic, and social turmoil and loss of freedom and purchase power, I see the typical middle class person / family as becoming forced to adapt to a much lower standard of living.”
Me: “Been there, done that. Can do it again. Been close to dead broke, and know how to pull back the reins on Wants, and focus strictly on Needs, after devoting a lot of hard work and dedication to improving income streams.
Diversity with savings, to hedge against any 1 or 2 investments that may shit the bed, during a crisis. Metals.”
Funny.
At one time, I thought for sure the path to wealth involved gobbing up rental properties, and was kicking myself for
not scooping up a few after the Housing crisis of 2008, before the big players bought up dozens of foreclosures.
Now? As Pup predicts,
Landlords who owe payments on income properties, with tenants given a free rent pass by the Gov during Covid-19?
Not the simple easy path to riches that used to be almost guaranteed.
Add in the insane dis-incentive to work and earn, by collecting unemployment, and it’s a recipe for disaster.
What happens when that runs out? A Trillion here, a trillion there. Crank the presses some more. UBI.
Hell, just drop the C-notes out of helicopters, like Benji once spouted.
And, if the masses’ UIC is extended, then how soon before hyper inflation of the $USD hits?
This will not end well.
If you have your freedom from debt, K.A.L.P.
Keep A Low Profile.
As, you’ll be targeted.
“You gots, and I ain’t, but need to feed my keeeeeeds. Gimme.”
You might need an armed escort to discreetly go buy groceries at Kroger or Publix in future days.
Provided, they have the provisions you seek on their shelves.
Interesting times, indeed.
“You Ain’t Seen Nothing Yet!”
Bu-buh-buh Baby, You Ain’t Seen Nothin’ Yet!”
-Bachman Turner Overweight.
Personally I liked this one better.
-Dedicated to Bobby B. Keep rollin’ safely, Beebs.
-signing off for the evening. Y’all be cool.
Randy Bachman’s fine jazz chops and BTO’s greatest song:
Sage advice for anyone.
Keep a low profile (hide in plain sight) is a policy I’ve adopted 100% and so far, so good. Granted, I don’t live in the USA so it’s a bit easier, given the national lack of overweening oversight. I’m waiting for certain properties to become available owing to the owners having overextended. Vulture buying? Yep! And I won’t even miss a yawn, never mind sleep. Meanwhile, I’m trying to convince my lady friend the owner/operator of the local pharmacy to let me buy into the place to operate a bill-pay, cash distributor facility that will put the finishing touch on the other pharmacist, a lemon-sucking, arrogant jerk who imposes surcharges for a service that shouldn’t have them. Opportunities will abound as the shakeout continues and old as I am, I don’t plan on watching them go by.
Very good essay, Pup.! Keep your eyes peeled!
https://envirowatchrangitikei.wordpress.com/2020/05/09/the-plan-its-no-secret-just-where-they-want-to-take-you/