James Dwiggins and Keith Robinson review COVID-19's early impact on real estate and the economy. Daily cases show signs of flattening globally. The government rolled out a $2.3 trillion stimulus package and mortgage forbearance policies, but lenders face liquidity problems in the secondary market.
Chapters
This is my time to just share with you what I've been seeing, what's been going on, what my opinion is of things. There's so much information and so much data coming at us that I'm trying to distill it down for everyone as fast and as efficiently as I can. So some of this may be redundant.
Or an update, but it is important.
To share and then a lot of it.
And again, we may have non real.
Estate folks on here, just normal people, but some of this too is just how do we parse all this down.
And how do we figure out how.
To express it to our clients? Because at the end of the day it's confusing. So it's confusing to buyers, it's confusing to sellers. It depends not just state by state, but county by county. So trying to parse all this down and trying to unpack it so that we have good information, as good real time information as we can and then.
We want to be real.
This is the real update.
We want to be real. But I'm an optimist at heart.
Most of us in residential real estate are. It's what attracted us to this industry and to this career field. And so I will not lie, I've got a dash of optimism that I tried to add anytime we have a conversation. So this time is for you. I've got some stuff we'll go through the PowerPoints but please use the questions tab if you have questions. If you want to go deeper on a topic that we're digging in on, this time is for you. So with no more delay, without further.
Ado, I don't even know what that means.
I want to dive in. So this is actually encouraging. Here you see the worldwide daily new cases. This is updated as of this morning. And as you can see on the right hand side of the screen, if you're looking at looks like we've hit the peak for the world and it's starting to tail off.
So all of that flatten the curve.
Phrase that we've been hearing about, you.
Want to create that bell curve where it goes up and then it flattens.
And then it starts to trend down. Now the work isn't done of course, but it's starting to look like we may have peak flattened and started to.
Trend down as a world, which is important.
And it also looks like we may be starting that same trend line.
In.
The US as well, again very early. Normally you would want more than two data points to have a trend line.
Okay.
So we don't want to get too celebratory here. And the other thing is part of the reason that this is flattened and trending down, if that's what's happening, is because some of the pain that we're experiencing with social distancing and figuring out which way, and I don't know about across the nation, but here in California.
They'Ve got all aisles in the grocery.
Store one way now there's one way in and one way out. So working through some of this pain and this discomfort of learning new things, it seems like it's working and that's really important.
And it's hard to go through things.
Like this, but this is encouraging. I don't want to start launching Fourth of July fireworks yet and, and celebrating. We don't want to stop doing the things that we've been doing. But it does appear that the daily new cases is starting to trend down, something we'll continue to pay attention to. And I always report these every Monday just to give you an update. Another important piece that has happened is, and this is last week, data. I tried to get updated data but I couldn't get it. But New York has been the hotspot or the epicenter across the nation. And a leading indicator for, for people getting healthy is the number of people going into the hospital has trended down for the last several days in New York, which is great news. That means all that discomfort and all the things that they're doing is impacting the spread of the virus, which is really, really good.
So some encouraging data points.
We still need more. The longer the trend line, the more data points on the trend line, the more stable that is. If you're a graphologist, that's actually a thing people who extrapolate and make decisions based off of graphs, but so do two or three data points isn't the strongest trend line in the history of the world. But you need two to have three and you need three to have four. So some encouraging news there on that. This is also a graph. I don't mean to bore you with financial data and chunky stuff like this, but it does look like China is starting to come out now. Come out means different things, right?
No, they are not back to where they were.
You can see that they're the blue.
Line on this graph and they aren't.
Right back to where they were. Movie theaters aren't packed, restaurants aren't shoulder to shoulder. They put in some new social distancing rules in some of the restaurants in.
And around and across China.
So it's not business as usual. And it won't be here either when we start to come out of this, when we start to turn the lights back on. And also to remember some chunks of this country don't even have social distancing in place. Maybe they've deemed that it's not necessary.
Or they haven't needed it. Maybe they will, maybe they won't in the future.
So not all of the US Is gone into this at the same time.
I'm in Northern California.
I think we're on week four of this. Florida just started a week ago.
Right.
So not everybody's going into it at the same time. Not everybody's going to come out of it at the same time. That's a good thing. That's overall a good thing for our US Economy. This has not been a good thing for the US Economy. We'll get to that in a little more detail later. But the fact that it's not the whole nation shutting down and then turning back on is a good thing. Check chat. All right, cool. So there are some data points and you're welcome for the graphs. This is important news just for the future. Remember, here's the process. When there comes to a virus, the first thing you do is what we've been going through, which is spread people out, stop the spread, right?
We've heard that, we've talked, we've heard.
Flattening the curve, social distancing, all that stuff. That's the first thing you do. Second thing you do is you start seeing if there are current drugs that.
Work, that help as a drug protocol to help treatment.
So people are going to catch it. Can we help more people get. Can we help more people get less sick? Then they also start the development of new drugs to treat it, and they also start the vaccination process. But until we have a vaccine for this, this isn't just going to go away. And this is where testing becomes so important. And if you go and model, which I've looked at the models for the countries that have had the shortest curve and the flattest curve where it was a problem and then it went away with some speed, was speed of testing and volume of testing. And so because this isn't just going to go away until we get a vaccine, which takes time, this testing becomes so important because there will be hotspots that pop up somewhere in the country, but they'll be testing people that show the symptoms. If you have it, they'll identify you. Then they'll trace who you spend time with. They'll test those. Oh, and then they'll quarantine you, put you off to the side and we'll see in a couple of weeks. Then they're going to test the people in your life and see if they have it. It'll be much easier to contain this.
When this pops up in other parts.
Of the country because they now have a test that can test in as little as 15 minutes. So this is an important step in the process towards keeping this contained until we have a vaccine or a really good drug treatment that helps people when they get sick. So this is reported. I don't work for the manufacturer. I haven't seen a scientist come knock on my door and tell me that this is fact. But it sounds like they've got a virus. A test that can test in 15 minutes, which will really help us not have this happen again in the future.
I don't even know really how to process this. For those of you that we do one on every Friday, James and I do a consumer facing webinar where we talked at length about this. So you can shoot me an email if you want. Keithnexthome.com I'm happy to get you a link to that so you can take a look. That's KeithNexthome.com but I don't even know how to process this. This graph, obviously since 2000 to now. Just look at that, right? It's crazy. Jobless loss has been something out of a science fiction movie. There's no way to really process this. Anyone who says they know exactly what this is going to do, the economy, look, in my opinion, they're lying to you because this is uncharted ground. Now, on the good side, I do think that this has been really intense job loss, obviously, but it should be short. And many of those jobs have been furloughed, not laid off, which means they keep their medical benefits, which is great. And they are intended to be hired back. So that is also great. And we'll just have to see how these numbers continue to play out. I do think you're still going to see big numbers because more and more parts of the country are going to shelter in place. And as more of the country goes into shelter in place, you're going to see businesses have to make some hard decisions and have to furlough folks. So we'll just see how this continues to play out. But don't be shocked if you see another week or two or three of bigger jobless claims because of the fact that other states are entering into this sort of lockdown phase. Question from the audience. Another topic regarding the 10,000 SBA grant. I heard they are no longer deducting it from the PPP program loans. Have you heard any facts, Tim? I have not heard that, but if you shoot me an email, I'll look into it. I know that the government is struggling with implementing the PPP program, but it's just because it's new. You got to On Friday we talked about this as well. But if you remember the HARP refinance plan in the financial crisis from 2007 and 2008. I had a full head of hair when we answered that and it all fell out. Not really.
It was. It was.
It's been leaving me for a long time. But when they first rolled out harp, it was a problem. Nobody knew how to do it. It was really hard to get loans, refinances funded and through the program. But as more and more people learned how to do it, just like anything new, it's super hard in the beginning. So I am starting to hear, of course there are horror stories about I sit on hold for 100 million hours and I can't get a hold of anybody and one person tells me to do it one way and then the next person tells me another. That is all real and that is all happening. But they will. What happened with HARP is a good indicator for what's going to happen with this PPP program and others. Those funds have been committed. Those funds are there and they're there for a specific set of people. And what happened with HARP was those funds were committed, those funds were there and they were for a specific set of people. And eventually those funds were distributed. I do believe that those funds will be distributed and most of those structures are designed to help to induce, really candidly to induce employers to keep and rehire their employees. So that is why I think you will see this start to take shape and start to happen. So I have heard. I know personally, friend of mine got conditional approval for his business. So like there are success stories out there. I know it's really confusing. I know it's really hard. I also know, Tim, I didn't directly answer your question, but it's just cause I have not heard that. But I'll be happy to dig in and see if I can get some.
Facts for you on that.
This is the new most recent stimulus plan that they rolled that the government rolled out last week. Launches 2.3 trillion Main Street Rescue Plan. This is beefing up treasury capital to purchase these small business loans because a lot of the banks basically when this got rolled out, said, hey, we gotta stop. We already have more than enough inquiries to place all this money. So basically the Fed has just started lobbing chunks of cash all over the place in areas that they think will benefit and help stimulate. So more for small business loans, bigger small businesses, 10,000 or less, not just the small business for the first one. And they also are using capital to buy securities, specifically mortgage backed securities, so that we can unlock the liquidity crisis. I'm going to talk a little bit more about in a minute. And of course lending money to states around the nation who need more help and support. So the government is writing a lot of checks, they are pushing money out. It's not dissimilar to the volumes that we saw in 2007 and 2008, but it is faster. This has come on us faster and is pushing the economy down faster even than 2007 and 2008. So they're providing more stimulus, more quickly, but hopefully it's faster, but shorter, not faster and longer than what we went through before. And I do believe this will be a shorter impact. So they're front loading most of the stimulus. We have webinars for days. So I just want to put this in here, the links at the bottom and actually I'm sure one of us listening on Facebook, if you can just copy that URL and put it in the comments section, I would sure appreciate it. For the various attendees, this is where we keep a lot of our webinars. We don't keep everything here, but this is where we keep a lot of our webinars. Because half the questions I've been getting lately are where is that video from the other day? So this is one central location. This is our public facing YouTube page. Anyone in the industry can go there. Anyone? Anyone? Like this is about sharing information with the industry and with the human beings that buy and sell houses. So here is where you can go find a lot of the videos that we have done and put together liquidity issues. All right. This is something I keep getting asked about. I keep talking about it, but I also keep getting asked about it. So I'm just gonna keep talking about it. There are. Okay, so the mortgage forbearance was a good idea from in, you know, you could see sitting in a conference room and say, hey, I got a good idea. What if we allow the US population to have a little holiday from paying their mortgage and then if that way if they get laid off because of all this craziness, they won't feel all the Pressure that we felt in 2007 and 2008. And that does make sense when you're sitting in that conference room. The downside to that is, and again, I'm not blaming the government, they're moving really fast and that probably is appropriate for what's going on. They are trying really hard to do things to stimulate this economy. And when you move really fast, you don't have time to think 10 chess moves ahead on what those implications will be. And so that created a liquidity issue that is still here today. And that liquidity issue is when you have a mortgage that someone does a first pay. Think about, there's someone that just got a mortgage a week ago, two weeks ago, three weeks ago, has not made a mortgage payment yet, but may get laid off, right? And, or even if they didn't get laid off, they can call their bank and say, I don't wanna make a payment. Well, the first time you don't make a payment, you are now a bad debt as far as a mortgage is concerned. That can't be sold to the same secondary mortgage market where you would sell someone, where someone has missed a payment. So it changes where they can go sell that loan. And, and because there are going to be some percentage of humans, and we're still figuring this out, what percentage, some percentage of humans aren't going to pay their mortgage. We don't know is that going to be, what is that going to be? A lot of loans? A little bit of loans, everybody. So that has created real liquidity issues. The government is trying to do things to unlock some of these liquidity issues by either setting up facilities where banks could, because the banks have to. In some situations, even though the borrower doesn't make the mortgage payment, the bank still has to make the payment to the secondary mortgage market. And if you had to do that for three months in a row, it is billions and billions of dollars for some of these banks. Now, look, I don't. Let's not. We don't have to play the violin. For bankers, it's, you know, like they do well a lot of times. But what we didn't want to have happen is have banks have the credit market seize up. That's what happened in 2007 and 2008. No one had any idea how to value these mortgages. And these, I won't bore you with the credit default swaps and all of that craziness, but no one knew how to value these mortgages. So no one wanted to buy them. And now we're having an issue where the liquidity issue is deriving from the fact that we don't know what we're going to do with these mortgages and this forbearance. And so we're hearing some of the horror stories in the industry like banks not funding. In the final hour, you're a day before close, you got loan docs are supposed to go out and they're like, yeah, sorry, we're not going to be able to do it. I'm not saying that's happening all over, everywhere, all the time. But I know for a fact that has happened at least once because we're trying to help someone in our company.
Who is going through that.
So banks are trying to to work with the government to find solutions, but all those solutions are not in place yet. And that's why you're seeing some articles like this one this morning. Chase now requires a 700 FICO score and 20% down payment to buy a home. Well, here's the reason for that. First of all, if you have a 700 FICO, you have a long history of making payments that you said you were going to make that will bode well that you will continue to make payments and that will enable them to, especially if it's 20% down payment, that will enable you to then to sell that on the secondary mortgage market. So if it's a very generic kind of vanilla situation, then that'll be pretty easy to work its way through the credit system even to.
