Interview: Coronavirus vs. The Real Estate Market
Unless you've been quarantining yourself from the internet the past month or so, you've noticed that the stock market has been, to put it lightly, not doing well. While lots of people can move their work to home, and students can try to move their learning online (unsuccessfully in many cases) the real estate industry works by having people out of their house and into others. As a Realtor, this naturally made me a bit nervous. So what did I do? I turned to my broker who has been through 2 previous intense housing crashes and asked him what his opinions are on this situation.
J. Philip Faranda is broker and owner of J. Philip Real Estate in Briarcliff Manor, NY, which he founded in 2005. The firm is, by transaction total, the top-selling true independent Westchester and Putnam-based brokerage. Phil has appeared on ABC World News and been a source for the New York Times, Businessweek, the Associated Press, MSNBC, The New York Post, Gannett, AOL, The Real Deal, TheStreet.com, 1010Wins.com, Smart Money, MSN Money, Time.com, and various other media outlets.
If you want the brief, TL;DR on this whole thing, it's that for now we don't have anything to worry about. There is not another housing crisis on the horizon, and we should wash our hands of that idea coming to fruition. If you'd like to know why that is, read on my friends.
A: Let's get the main worry out of the way first. It's no secret that the stock market is tanking pretty hard right now, do you have any worries about that coming in and effecting the housing market?
J: Unless you're heavily dependent on stocks to buy a house, like for example, you're borrowing from your 401K or liquidating some assets to pay cash for a mansion, the regular folks typically wont have much to worry about. Now, that doesn't mean that there wont be some collateral damage, but what it does mean is that there's no distinct relationship with the stock market going up and down and the housing market going up and down.
A: And so, if this downward trend continues, what distinguishes this situation from the crashes in 2008 and 1987, since those both took the housing market with it?
J: In the 80's there was a big real estate boom under Reagan and it was artificially sustained by savings and loans banks, which is a type of bank that no longer exists. Savings and loans made risky loans to further expand their borrower base. The stock market crashed in 1987 and by 1988 dozens of banks had failed. And when banks start to fail, the entire financial community starts tightening their wallets. So ,you had major, major institutional level bank failure due to bad loans which affected pensions, retirement funds, 401Ks, everything.
In 2008, banks were making high risk loans to high risk borrowers for years, and then those borrowers started to default on their loans and the repercussions were just terrifying. Really. Lehman Brothers failed, there were all kinds of bank failures, and that made it impossible to borrow money unless you...unless you didn't need it. You literally needed to prove that you didn't need to borrow money in order to borrow money.
A: Speaking of borrowing, mortgage rates are crazy low right now, and with investors taking truckloads of money out of stocks, could real estate be a better alternative for those people looking to invest their money?
J: Yep, absolutely. Real estate does not have the fragile volatilities that the securities market has, so yeah.
A: Do you foresee home buyers and sellers worrying about going out to see properties or letting strangers into their homes during a time when people are wary about shaking hands?
J: Yeah, they'll get nervous but I don't think they'll put the complete kibosh on it. I think people will pivot, I think social distancing will be a thing, I mean 40% of the population doesn't want to shake hands anyway so they'll be relieved. It will no longer be considered rude to not shake hands. What we are seeing is that they arrested this in Hong Kong and Korea where they were just smart about it. They bow and they stopped licking strangers on the hand.
A: Which is a shame, because licking strangers' hands is an essential part of my business. So, in areas that have higher number of confirmed cases do you think that it would be in an agent's best interest to cancel any open houses for the time being?
J: I am a big proponent of you following your gut. If you want to hold a house open, follow best practices. With what we know now, which isn't much, it's the agent's decision. I'll tell you this much though, if my kids wanted to go to a concert tomorrow, they're not going.
A: Yeah, if only as many people came to open houses as went to concerts. Last question. We as humans are tend to overthink and to panic, should concerns continue to grow, do you have any current/potential home buyers and sellers who are becoming hesitant to make the move?
J: Absolutely. In matters of fashion, go with the crowd, in matters of principle, stand firm as a rock. To put in another way, Warren Buffett says if everyone else is selling, you buy. There is a nebulous thing out there nibbling away at consumer confidence right now. It is making sellers nervous, which is giving buyers leverage and rates are historically low to boot. You've got a pretty good opportunity. I don't want anyone getting sick, but if you don't lick strangers on their hands and they make and offer on a house and capitalize on great interest rate, that's smart. That would be my thought about it.
The only time that market crashes is when the money disappeared. You can have 22% interest rate, you can have wars, but the housing market is fine. People like to live indoors, people like plumbing.
A: That is a thing that we discovered we liked a long time ago and have not since given it up. That's all I've got for now. Thanks for chatting, boss.
J: You got it.
Thanks for listening, everyone! Enjoy the rest of your day, and don't forget to wash your hands!
Licensed Real Estate Salesperson
J Philip Real Estate, LLC.