Covid-19 is NOT the End of the World

Damon resides in an office with his team some 20 miles north of my team’s office in Boca Raton, something I am grateful for given his present demeanor.

I have a lot of respect for Damon, he has this annoying habit of being right on a lot of things, but not everything and the keyword here is everything! When Damon showed me a copy of his article for this month’s ‘Peel’ I immediately started to lookup local therapists to purge what my eyes had cast themselves upon.

Don’t get me wrong, there is a lot of good assumptions in Damon’s article based on his experience, and I subscribe to a lot of what he writes, but not at the same level of intensity.

I don’t intend to comment line by line, subject by subject on Damon’s written opinion but would like to give a slightly alternate view on the outcome once this horrid disease is suppressed and hopefully eradicated.

The 2009 housing disaster, which I will try to explain in layman’s terms was predicated by droves of prospective homeowners from the early 2000s being offered home loans through a secondary lending market (sub-prime). The only qualification the candidate needed at that time was to breathe through to the end of the mortgage application process, which involved no proof of income or credit checks. 

If you could afford to pay for what at the time was a low adjustable monthly mortgage rate, everything was fine. That was until 2004 when the federal reserve raised their federal funds rate (interest rate) and these adjustable interest rate mortgage loans went through the roof which people could no longer afford and therefore defaulted on.

This slaughtered the value of property as millions of homeowners rushed to get out of the way from their rapidly approaching financial Armageddon.

With home prices collapsing these mortgage-backed securities (derivatives) which financial institutions such as banks, mutual funds, pension funds, and corporations gobbled up from the secondary market, watched as their investments devalued along with their cash cow, causing massive liquidity issues that led to the 2007 banking crisis and general financial suffocation, hence the 2009 recession.

This new financial stress which is going to land firmly at everyone’s door has been caused not by greed and an overheated economy, but by someone in Wuhan, China eating a bat and not washing their hands properly (if at all) after visiting the bathroom.

Prior to this nightmare the economy was robust and bouncing along nicely with a vibrant stock market, a reasonably strong dollar a seemingly favorable trade deal with China and optimism abound.

The last recession did not fully recover until late 2012 early 2013 and a different financial world developed because of it, which has served us well up until a few weeks ago.

I believe that this recession which we are certainly immersed in will be short-lived as we will quickly reset at 60% to 70% of January 2020.

People are not only resilient but also have short memories and the unity that most (not all, unfortunately) of us are displaying will spill over and help drive the economy, once the worst of this disease is over.

Yes, there are going to be financial fatalities that will inflict the inexperienced and the weak but unfortunately, they were destined to fail anyway and sure there will be anomalies that may have allowed things to carry on without this virus striking, but by and large the economy will streamline because of this culling and be better for it. Harsh as this statement may seem, as Damon would say, this is reality.

The stock market has fallen in my opinion overdramatically, the fall reflects in the main the hysteria, current sentiment, emotion and hype surrounding the virus and not the true values of some individual stocks, wait and see, the Dow and S&P will quickly elevate after the virus looks like it is slowly diminishing and the investor herd realizes that a lot of stocks are undervalued and represent a profit, stocks will not recover to pre-Corona values, but will not be far off.

This will breed general confidence, and overall recovery will slowly but steadily grow speed.

So, many people reading this article live in Florida and all will or want to invest in this geographical paradise albeit with a few dodgy areas.

Hitherto the housing market was steady with no volatility and in some instances such as the beach cities and towns, showing moderate growth, especially in the luxury end of that market and I don’t expect this to change, not at least in the immediate future. Damon has said to me these past weeks in my words, not his, that once the housing market gestates and percolates the violent interruption to its past tranquility, that prices in some sectors will decrease dramatically and there will be a lot more foreclosures. I agree with this sentiment but not in the wholesale amounts Damon envisions.

All that will happen is a speeding up of what was inevitable as I mentioned earlier regarding the inexperienced and the weak.

The governments of China and other Central and Southeast Asian countries need to stop a Pandemic becoming an annual event by shutting down and exterminating their wet markets where wild animals are consumed for food, once this happens and I can see no reason why this will not, the world can get back to a form of normality and I believe the process will be faster than people realize.

People will not stop Cruising, after all, it was the fastest-growing segment of the travel industry for the past ten years, similarly, plane travel will immediately ‘pop’ back up to pre-virus levels as the travel industry as a whole will recover quite nicely as they will only take back personnel they want while using the Pandemic as a convenient excuse to shed ‘fat’ in their companies that under normal circumstances they would not be able to do without costing a huge amount of redundancy money in States and other countries that don’t or can’t practice ‘at will’ employment which is basically the employment of staff with no contracts. 

I repeat, people have short memories and most will blunt the sharpness of this present experience and cast it off anecdotally in the months and years to come, providing China et al do their job for the human race, the global economy will get back up and carry on.

Damon refers to the oil industry as being badly hit but pre-virus it was already in bad shape with a slowing in demand for the black gold and natural gas due to alternate power sources and an oversupply. Just prior to this Pandemic oil-producing countries/companies were collectively trying to stem the downward price trend by cutting production which due to every man for himself attitude was not working out too well. So, without being repetitive this present event has sped up the process and will hasten the oil companies to find alternative income streams possibly juxtaposed to their current product, however, whatever that is, it will still need employees.

Let’s not forget that most of the civilized governments of the world are going to put in place stimulus packages for banks, major corporations and ‘too big to fail’ entities together with and most importantly for their citizens. This strategy would bring any ‘dye in the wool’ socialist to get teary-eyed, yes it’s ‘just printing money’ but so what, if the band-aid eventually heals the wound, the end justifies the means. Here is the big difference, most countries are employing relatively the same strategy, not just a few, this sets a level playing field globally, so any negative economic impact is dampened on an individual country and I believe this will avoid a depression here in the US. 

Sure, the stronger economies will fare better and as the US is one of those, what the heck?

Don’t get me wrong I don’t expect the world to become one and start singing ala Coke Advert “I’d like to teach the world to sing” (under 30, google it?) but something inside of me thinks the world maybe if even for a short while will be a better place because of this virus and camaraderie may just aid a faster economic recovery.

But anyway, you guys are reading this article because you are interested in the Florida property market and what will become of it post virus so here is my take.

The auction markets are going to get busy, real busy, so stock up on knowledge and cash (if you are able) as there is going to be some bargains to be had not just from inventory post virus fall out but also from banks that are holding REO property pre-virus who will now release their assets that otherwise will devalue from this point forward should they hold any longer. It’s worth remembering that the increased foreclosure activity will not happen overnight as there is a long drawn-out process before these properties end up in foreclosure, plus there will be additional delays as the government hands out foreclosure and eviction holidays to the newly disadvantaged, but any properties that were near or at foreclosure just prior to the virus will be expedited by the courts to make room for the expected wave to come through the court system, we may even see the reintroduction of Friday auctions in the counties that canceled them due to the previous lack of foreclosures.

For me to comment on the Florida commercial market with any authority would be misplaced as this is a segment of the market that I have been absent from for the past five years.  Common sense and my gut tell me that office space is a thing of the past, retail has waived the white flag at e-commerce and internet on-line sales, there will always be a need for warehousing and industrial space will get better if the government’s proactive approach to ‘made in USA’ prevails.

I strongly believe that we will not be as in a bad shape as Damon predicts and as I said before there maybe some unlikely positives to come out of this present nightmare. So, as you see my position is not too removed from Damon’s but as my expertise is in the Florida auction market and building out luxury houses and condominiums, I can give you a definitive opinion on these and an assumptive opinion on everything else.

Why don’t you leave your opinion in the comment section below and tell us what you think because to rework Damon’s, sign off, I hope I am right, I hope I am very right. 

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Tony Stern

Born and educated in the UK, Tony began his real estate career in 1976. By 1982 Tony launched a real estate development firm. In the 1990’s he created, acquired & sold several companies including Star Refining an international precious metal refining company with offices around the world. Since 2001 Tony has been investing in all aspects of real estate, concentrating on the Florida foreclosure market. Seeing a need to help investors, in 2016 Tony co-founded,

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