Published On: Wed, May 6th, 2020

Why won’t we have another 2008 in the real estate market with COVID-19?

The big question of the moment is about what will become of the real estate market as a result of the Corona Virus

We have to look at this issue from the national, regional and directly affected areas.

In terms of the economy in general, we have to consider that the prospects for resumption of growth in the U.S. will be  real, the political issue of trying to demonstrate that a depression will be inevitable, will end with the presidential elections. It is natural that they continue to show a dantesco picture, as electoral propaganda to try the election of the current opposition, but whoever wins the clash, the search for economic success of the country will be the keynote for 2021.

Some points, on the other hand, differentiate the 2008 crisis from the present moment

The resources allocated by the EDF to give liquides to the banking system (which did not occur with the speed we had now) gave peace of mind to the population and to the banks in particular.

Immediately$1.5 Trillion was made available for this liquidity which ensured that the sector would go unharmed by the crisis.

On the other hand, unlike 2008, when the crisis hit the real estate sector, we had a very high inventory that would lead us to be absorbed, without real demand, were basically speculative purchases.

Today, the stock is low, with a household deficit between 300,000 and 400,000 homes annually, because the new mortgage approval system for home purchase stiffer than ever before and loan rates relatively high. With this, the houses could not be acquired.

Today we have a “mortgage” with a very low cost, in historical terms, up to less than 3% per year, which is attracting not only people who seek to buy their homes, but also investors, including from abroad.

It should be added that the illiquidity of 2008 was because banks financed homes considering the expected future value and today, we have a security of a high percentage of equity in properties and Americans are much better, economically. In 2008, the “Flow of funds” was 52% and today it is 64%, according to the EDF. What of more responsibility and security in relation to the payment of debts related to the purchase of the property?

Additionally, federally backed financing had debt enforcement actions suspended for at least 60 days, with extinction likely for another 12 months, which will take some of the potential selling pressure out of the market.

On the contrary, the government’s plans are to encourage the purchase of own homes for those who pay rent today, which should help the crisis of homelessness and put more liquids in the system.

Finally, real estate, the exception of 2008 when they had a high average decline at the national level, in the other recessions has always presented an appreciation, after crises, in the face of its rapid recovery.

It is clear that some sectors such as temporary rental homes, with the Orlando region, will be affected bythes. First because, Orlando as a whole, has a large current and upcoming offer, which prevents appreciation as in other areas. Secondly, because with the retraction of tourism, parks temporarily closed, these houses that paid their mortgage with temporary leases will have heavy charges without the counterpart of rents, that is, without the promised and expected revenue, which should cause the sale of a reasonable amount of homes by forced and not foreseen  default.

But we have to consider that in the medium and long term, life will flourish again in Orlando, with the same intensity as always.

In conclusion, the sky is not black for the real estate sector, on the contrary it should be a major investment option, particularly in structured operations with financial investment.

Carlo Barbieri

About the Author

- My name is Carlo Barbieri, an entrepreneur, civic activist and a leader of many organizations associated with Brazil. A native of Brazil myself, I am currently the CEO of Oxford Group, a firm composed of many international consulting and trading companies. I am also a founding member of the Brazilian Business Group and founding member and Past President of the Brazil Club. In addition, I serve as a Board member of the Deerfield Chamber of Commerce. I have served as a member of the Florida Chamber of Commerce and the Florida Brazil Partnership. Past President of the Rotary Club – Boca Raton West for the 2014-2015 term, I have also been Vice President and Professor of 2Grow – Human Development. An Ambassador of Barry University in Brazil, I am the former President of the Black Fire Bull Steak House. I have also presided over a number of organizations such as the Brazilian Association of Trading Companies (ABECE), Brazil-China Chamber of Commerce in São Paulo, Brazil-Australia Chamber of Commerce, Brazil-Dominican Republican Chamber of Commerce; director of the Trade Center of the State of São Paulo, Brazilian Association of Freight Forwarders and Brazilian Association of Banks. I was also a local Council member for the Consulate General of Brazil in Miami, for the 2013-2017 term.

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