Velocity of Economic, Real Estate Shift Increases
The Micro View Monday, March 23, 2020
Velocity. Simply put, the quickness of motion or action in a particular direction. Given the span of time between now and our last article, published Wednesday, March 18th, it’s fair to suggest that the impact that COVID-19 has had on the Las Vegas property market in those few days is equal to warp speed velocity. Pre-coronavirus, both housing and commercial real estate stood firm on solid ground, yet we find ourselves running straight into an economic quarantine. How quickly can the industry regain ground and recapture momentum after the world heals? That’s the million-dollar question.
And while this article is geared towards property market reactions to COVID-19, it’s paramount to reiterate that this is not a housing or real estate pandemic – this is a health pandemic that has a domino effect on economics, jobs, small businesses, large corporations, people movement, the property market industry and, frankly, the world as we know it.
Should tenants and landlords not find equitable solutions quickly, we will likely see a high rate of retail vacancy in the city in the coming months, with office space not too far behind.
Retailers and small businesses are vital economic engines in Las Vegas. With implications coming down on non-essential businesses that do not adhere to Governor Sisolak’s order for closure, they are panicking to find solutions to the loss of income and continued debt service to their landlords. This creates quite a conundrum when landlords are dependent on that rental income to service their own mortgage debt. Under the Stafford Act, President Trump ordered the SBA to provide Disaster Assistance Loans to small businesses affected by the coronavirus, however, safety nets such as these are tangled, bureaucratic, and difficult to navigate at a time when anxieties are already high.
Nevada was one of the first states to receive these benefits. Such loans could be a lifeline to employers to continue to pay salaries and minimal operations whilst waiting out the storm, leaving them strapped with even more debt to service whenever the upswing comes. This may be offset with emergency tax cuts and savings in the future, but it’s surely muddy waters to navigate. Should tenants and landlords not find equitable solutions quickly, we will likely see a high rate of retail vacancy in the city in the coming months, with office space not too far behind.
Residential real estate continues to move forward, yet it is anything but business as usual.
Residential real estate continues to move forward, yet it is anything but business as usual. While there is no evidence or trend of a decline in residential values, Showingtime is reporting an estimated 23% decline in house showings in the last seven days, coming at the onset of Spring, when volume typically ramps up. The number of pending transactions (properties accepting offers and entering the escrow process) is down roughly two-thirds from the stats on the 17th. These hits stem from a lack of people movement and sheltering in place, as much as a general fear and uncertainty of layoffs and massive business closures. Open Door and Zillow put a pause on home buying, citing coronavirus concerns, which will likely push more sellers to the traditional open market for the time being. It’s important to note that we are still seeing buyers in the market taking advantage of low-interest rates.
We’ve seen a handful of houses come off the market from sellers concerned about having strangers in their home.
While conducting real estate has been deemed “essential,” in an overabundance of caution, the Greater Las Vegas Association of Realtors is prompting agents to cease all actions that would create the gathering of people or prohibit social distancing, such as open houses and driving clients about. We’ve seen a handful of houses come off the market from sellers concerned about having strangers in their homes. Properties have become more than an asset to sell, and are now their safe haven. Technology is allowing some real estate to continue to transact through virtual showings, remote notarization, online closings, and digital signings. Ancillary service providers (i.e. appraisers, home inspectors, and repairmen) are operating on a smaller scale using social distancing and sanitization practices. We’re also finding, more often than not, that they are requesting that the homeowners not be present while they perform their services.
What could be the biggest shock to Realtors and their livelihood is the fact that we’re already seeing cases being filed in California against agents, their brokers, and sellers over the coronavirus. We are in the very early stages and these cases will undoubtedly continue to unfold, and agencies will adopt new procedures and contracts as a result. The creation of policy at a state and local level is already under way.
We will suffer losses and have rebuilding to do, but we have always been #vegasstronger.
New home builders have been deemed essential and continue construction, which is keeping tens of thousands employed. We’re finding sales offices closed and offering model home showings by appointment only for the safety of the staff and the community at large. Recently, the Las Vegas Review-Journal spoke with Nat Hodgson, CEO of the Southern Nevada Home Builders Association, who reported that nonessential staff who don’t have to be in an office are working remotely and reducing their contacts. In addition, workers in the field are keeping 6 feet apart to meet social distancing guidelines to be safe. Hodgson said some cities across the country are shutting down homebuilding operations altogether. He said that he is glad it’s continuing here, stating, “We just can’t shut down.”
“If you shut off homebuilding, it’s not just builders that would be harmed but employees and employers of subcontractors and those working for manufacturers and suppliers and delivery, and on and on. And, there are people (who) are counting on moving into their homes. If they don’t have a house, they could be homeless. We produce a large product, and everybody has protocols in place. We haven’t hit the panic button, and nobody is shutting the door on us,” Hodgson was quoted as saying in the article. He added, “Clark County and Henderson, Las Vegas, and North Las Vegas continue to process plans from builders and conduct inspections. North Las Vegas has started doing inspections by video.”
In closing, given the healthy economic environment of Las Vegas when we entered this global pandemic, we have a (very) small window of time on our side. Most homeowners sit comfortably in homes that have a bit of equity and affordable monthly payments. We were experiencing somewhere in the neighborhood of $40 billion in construction in the city with a shortage of workforce pre-COVID-19. The swiftness of fiscal relief is paramount. Food and water supply chains are improving. American ingenuity has reduced the wait time for the virus test from four days to 45 minutes.
There is a call to all mortgage servicers to automatically suspend payments for three months with one phone call. Student loan payments have been canceled for 60 days. The SBA is providing $25,000 signature loans for business owners, and more if they can qualify for it. A bailout bill totaling almost $2 trillion will most likely be on the President’s desk for signature within 36 hours, which will provide 39 weeks of unemployment and numerous other benefits. We are living in a very powerful country. We will suffer losses and have rebuilding to do, but we have always been #vegasstronger.
Our community continues to come together in times of need. We’ve been forced to slow down. We’re forced to socialize with those we commune with on a different level. As fast as Las Vegans embraced technology to work and teach from home, social media would suggest there’s a more human element shift taking place. As of right now, it is unclear just how long the shelter-in-place initiative will remain, however, we’re in this together and we will get through it together.
When we address economic real estate shifts for a potential individual who wants to come on board in this circumstance, where we’ve never been in before, we’ve never never experienced a pandemic like this, and the rate at which our economy is shifting. It is this velocity of the shift – it is happening so fast, we could literally be hit with an onslaught of foreclosure in about 12 to 18 months from now. The developments which will came out this and that most people don’t understand how to use this velocity – it is so fast – we are going to be poised for the new economic real estate market in 12 to 18 monthsPAM JUNGE