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Alphabet Economic Recovery - Is V? U? L? #brokermac
May 05, 2020 at 8:40pm | Mac Rogers
guys, welcome back to the channel. In the previous weeks, the question that I was getting was if we are in a recession or going into a recession? I made a video on that. And the answer is yes and yes. We are already in a recession it's just finding out
how deep this is once the final numbers comes out.
Now the question that I have been getting is how long are we going to be in a recession or what type of recovery are we going to have.
My name is Mac Rogers. I'm a real estate broker here in Castro Valley CA. If you are new to the channel, I give weekly updates on the real estate market as well as the financial/economic updates and how it may affect our real estate market. If you like
the information, please click subscribe, like and share. Would also love to hear your comments and feedback.
As you all know this pandemic has put many businesses on hold as we grapple with how to address the situation and also deciding on when and what the best strategy is to slowly and safely reopen our economy.
Which begs the question: how long will it take for us to get back to where we were or some semblance of a normal business climate?
If you've been watching my videos, I've said in the past videos that most economists are looking at a V-shaped recovery. This is a very steep decline followed by a sharp recovery. According to past pandemics and how the economy reacted after a pandemic,
this is what most economists are expecting to happen.
Basically the thinking is that this was a planned shut-down of the economy. The pandemic was the unknown factor that caused it but the economy that was just humming along was just put on hold. So logic dictates that once we go back to work, we restart
the economy back.
Take a look at the following chart. This was what most financial institutions are forecasting.
Basically Q2 is where we hit bottom and Q3 and Q4 we have the bounce.
Now obviously there are other possibilities for the type of recovery that we might have and here are 2 others I want to bring to your attention because we've had a bit of shift in some economists thinking.
We talked about V-shape recovery, then there's a U-shape recovery. A U-shaped recovery is when the decline is more gradual, and then the recovery that follows starts off moderately and then picks up speed.
This could be a 12-24-month period.
Then there's a the L-shape recovery. An L-shaped recovery is a steep economic decline followed by a long period of no growth or just sideways. This is what happened when we had the housing crash. Recovery took several years.
Now there are several other types of recoveries and we won't get into that here. I'm not an economist nor do we have the time to talk about all the "letters" that represent the different types of recovery.
Obviously no one can say for sure what we are looking at. As a matter of fact, there's a new poll done by Reuters, they asked 45 US and European economists what they think the type of recovery we will see and a majority of them (around 49%) said it will
be U-shaped and 22% said it was V-shaped.
The difference in opinion is most likely because we never experienced something like this before. It is extremely difficult to forecast and project and compare to previous economic events because now, analysts have to incorporate three different sciences
into their equation.
The first is business science. This is looking at past economic data and then seeing how the economy reacted to the event and seeing if the current event fits the pattern.
The second thing that now they have to incorporate to the their models is health science. When will we have this coronavirus (COVID-19) under control or have a vaccine? Will there be a second wave as other doctors and scientist are warning? We don't have
an answer to this.
The third is social science. How will people react? How long will it take for us Americans to feel normal again. What will normal going to look like?
Business science, we have that answer. We've gone through past events like this before. An external event that caused the economy to go into a sharp decline. Think 9-11. That was an external force that was unforeseen.
I remember back then we had several months where people were jittery. The worry of flying. Or other types of terrorist attacks.
Then the government instituted all these safety measures, like stricter screenings before flying, or the planes cockpit being totally secure now. And know it has just become a part of life. It's the new normal. Long TSA lines, removing shoes, jewelry
etc. We got used to it.
What we have in front of us now is a virus, that does not have a vaccine yet, we don't have total control and as far as I know, limited testing.
How Americans react or go back to normal is all predicated on controlling the virus. My thought is that once we have a vaccine or other solutions to it, that's the time we start seeing Americans going back to their normal routine.
If you are thinking of buying a home, this may well be a good time because there will be less competition, prices might soften a bit, although I have not totally seen that happen.
I'll give you my personal experience on something like this. When 9-11 happened, we were in the middle of buying a house. One of the neighborhoods that we wanted to buy in came down in price. About 5%. This was at the very top of our price range so I
decided to wait thinking that it would go down some more because people were afraid to go out.
Well, that didn't happen. From going down 5% to all of a sudden buyers were bidding 10% to 15% over asking again, it just happened like that. If you are still in the market, take advantage of this time of less competition.
Now, if you're thinking of selling, here's the good news, before we went into this situation, inventory was low. So that is still the case as some sellers are now continuing to just wait and see, so if there is a need for you to sell prices are still
strong. It maybe not be the same as before but definitely still good.
I hope you found this useful. Would love to get your comments and feedback. To me the way I see it, it's hard to guesstimate what might happen without some solution to the virus. So right now I see us kind of a V-shape like this and then goes sideways