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  • Writer's pictureLesley McAdams

The Economic Impact of COVID-19: A Real Estate Perspective

There’s no doubt that lives saved by CDC recommendations for the management of the COVID-19 crisis are worth the costs. Extreme social distancing lowers the number of cases hitting medical centers at any given time (you’ve seen all those “flatten the curve” memes) and it also reduces the overall number of cases (the area under the curve).

However, there will be an economic cost.

While the US economy is heavily a service economy, not all jobs can be done from home. Fewer people at physical locations mean fewer sales and lower productivity. For those able to work from home, this situation layers on its own limitations, especially with children also at home due to school closings.

There’s no doubt productivity is going to slow in virtually every industry.

At some point, we’ll make our way back to workplaces, albeit the operating of these workplaces will be materially and permanently changed. This is happening in China now. And, some transactions will be made up as we surface. Economists call this “intertemporal substitution,” meaning purchases were put off rather than dropped altogether.

Home sales are a good example of delayed but not forgotten purchases. Home tours and sales in certain areas and categories seem to be experiencing a similar brisk pace as a few weeks ago. A lot of people want to live and work in The Triangle area of NC.

In some cases, buyers and sellers may not be touring homes or allowing people into their properties during extreme social distancing, but people still want to purchase homes. Consequently, the residential market here may see a longer high season than is traditionally experienced or a frenzy of transactions in the late summer (though the market is already so tight, it’s hard to imagine it being any more frenetic than it already is!).

The same can’t be said for things like a cup of coffee or regular date night at a fancy restaurant. Sorry, Starbucks, I can’t see bulk buying lattes to make up for the lattes we missed during social distancing.

Here’s the reality. Many important small businesses may not make it past the economic storm. It’s tempting to argue that economic stress separates the wheat from the chaff, that the strong will survive. That’s not always true. We may lose some important or impactful businesses and when doors reopen the holes left by those companies could dampen any “bounce” that comes once the crisis has passed. For example, drop-in day cares may become a thing of the past. This could seriously negatively affect parents in industries where schedules are set weekly. Think retail and food service.

I see numerous residential real estate agents touting drops in interest rates as a great thing for buyers. Lower interest rates are great for home buyers until they’re not. They are missing the more important signal – the Fed is cutting interest rates because the economy is teetering.

Next Two Posts: COVID19 vs. the Economy, The Silver Linings

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