Over the past 3 months, the feeling around the globe has been sort of doom and gloom. Wuhan-400 also known as Corona Virus Disease of 2019 (Covid-19) is surreal and has affected many lives and industries globally. The name itself was given by the World Health Organization (WHO) on February 11th 2020 in relation to Severe Acute Respiratory Syndrome (SARs-Cov-2) – meaning this is not the first coronavirus that has surfaced, although it is a specific virus. As of this writing, according to Worldometer the number of cases worldwide is 3,308,231, deaths toll 234,105, and recovered 1,042,608 Covid-19. With all the statistics floating around, it is important to recognize that this pandemic lifespan will not last forever. Clearly, experts have already determined the survival recovery rate is higher among humans below 50 years of age.
As with any major crisis that unfolds, such as 1929 stock market crash, World War II (WWII), Korean War, Vietnam War, September 9/11, Earthquakes, Tornadoes, Cold war 1947-1991, Stock Market Crash of 1987, Gulf War 1990, Dot.Com Bust of 2000, Great Recession/Financial Crisis/Mortgage Market Crash of 2007/2008, etc., it is inescapable not to have economic downturn, major shock in financial markets, lost lives, and fear of the unknown, especially with a “black swan” event such as this. This article is not meant to defy any government organizational findings or proposed solutions to a pandemic – rather, it is solely to share some insights about some market turbulence that typically occur in the midst of a crisis and afterward. Below are 4 major important factors among several that usually unfold:
1- Economy: Covid-19 has impacted the global economy by (i) affecting production nationally and internationally: (ii) supply chain creation and disruptive market shifts; and (iii) massive impact on individuals, corporations, firms, small businesses, and financial markets. Massive stimulus is usually at play to recharge a failing economy, and help stabilize it. In the case of the U.S, the Federal Reserve (the Fed) has injected $2.2 trillion in the overall economy. Many sources from financial experts at major corporations and finance media pundits have already exclaimed that the Fed will probably “print” $5 trillion or more – just to keep the overall economy intact till everything gets back to regular normalcy.
The stimulus package bill has many layers classified as such: (i)30% share of the package, $603.7 billion went to individuals ; (ii) 25% share, $500 billion went to medium and big size businesses ; (iii) 19% share went to small businesses, where the Small Business Administration (SBA) is handling $377 billion in funding through the Paycheck Protection Program (PPP); (iv) 17% of the share, $340 billion, was allocated to state and local government agencies; and (v) the remaining 9% share went to public services, $179 billion. Clearly, the Fed is doing whatever it can to keep the economy afloat, and this is good for small businesses, borrowers, and owners.
2- Unemployment: According to the Bureau of Labor Statistic (BLS), as of 4/30/2020, U.S unemployment rate remained at 4.4% level, an increase of 0.9%, making it the highest since 2017, the largest month-to-month since January 1975, and above market expectations of 3.8%. Additionally, due to Covid-19, the number of unemployed increased by 1.35 million to 7+million mid-March, and with 33 million job loss in the nation, the depiction of actual unemployment rate is closer to 20.5%. The graph in table 1 below, from Fortune, illustrates weekly initial unemployment claims in 2020. These numbers will likely grow if lock-down remain at full force in most states.
Table 1. Weekly Initial Unemployment Claims 2020
3- Consumer Confidence: Many Americans are out of work and the number of unemployed escalated to 30 million. This has significantly lowered consumer confidence due to fear of expectations. Government mandate of 6 feet isolation in public places in the country and quarantining are forcing millions of citizens to spend more time “online” and doing business remotely in that capacity, for the short-term. Overall, consumer confidence is not very strong as many citizens must abide to voluntary home isolation, home quarantine, social distancing, and lack of funds due to job losses. Interestingly, the average consumer confidence for 1Q2020 was 96.6, based on economic research conducted by the University of Michigan Consumer Sentiment for the United States. This number represents, consumers own financial view in relation to the economy, and how the overall economy will fair in both short and long term. For the month of April that number precipitously declined to 71.8. What’s next?
4- Housing: With every crisis the housing market usually follow suit to a certain extent. Will Covid-19 create the same outcome as the Financial Crisis of 2008 housing collapse? Previous disastrous catastrophe like (1987 stock market crash, 1998 Russian financial collapse, 2000 Internet bubble, etc.) have all affected real estate markets, drove pricing down, slowed down projects, and created disparity in supply and demand. This coronavirus pandemic is no exception. The difference with this event is its abnormality, long-term severity it will cause, and changes of how we interact as a species that will occur globally.
The federal government has already issued mandate for agencies bodies: Freddie Mac, Fannie Mae, and Ginnie Mae to offer mortgage forbearance support for borrowers and also reduce interest payments on debt. On the commercial real estate front, many transactions have been put on hold due to the temporary closure of many local, state, government real estate bodies and a myriad of other reasons. The real estate sector will be tremendously impacted as well. Nonetheless, unlike the past financial crisis of 2008, lending, buying and selling are still occurring – simply at a much slower pace.
Ultimately, every catastrophic event that occurs in societies globally, countless lives are lost, government intervention becomes more pronounced, economies go into chaotic volatility, and it usually feels like the end of humanity. In term of financial crisis, we have seen at least 7 of them dated back to1987 Stock Market Crash, 2000 Internet Bubble Collapse, 2008 Financial Industry Collapse/Great Recession, just to cite a few; and then here comes 2020 Covid-19. As the most reasoning species on planet Earth, also very resilient – we usually come back stronger in the aftermath of chaotic events. In fact, new industries, products, services, stronger humanitarian footprints, incredible men and women inventors always emerge to make the world even a better place for individuals globally to live and thrive.
Ibsen Alexandre offers his opinions about real estate finance, business, and investments at www.Refivest.Com and other real estate publications. He can be reached for financial writing and lending, and financing consulting at email@example.com
The opinions expressed herein are those of the author(s) and do not reflect the view of a firm, its clients, any respective affiliates nor any media platform. This article is for educational general purposes only and is not intended to be and should not be taken as solicitation for investments or lending.