Where We Are Now: April 6, 2020
Work From Home — Day 22
Learning Opportunity — Jobs & Housing Markets
5:00AM PST
Team –
I was biking Sunday with my friend Boyd Fellows. He is in the commercial real estate debt business and originates around $5 billion a year in commercial real estate loans. Boyd and his partners had an all-team meeting on Friday (on video conferencing of course).
One of the main messages to their team was the learning opportunity currently available to everyone on their team. There is not an MBA course or PhD credential that schools us for crisis like the one we have before us. Unprecedented!
Soak up the experience. Run towards conflict or adversity; do not shy away. Treat everyone with respect and know that the journey out of this crisis is near. Take advantage of the learning experience.
This is my fourth economic crisis. Three of them being when I owned my own businesses. I treat this fourth one the same as the previous three. Reflexes, actions and decisions come in two categories for me: business decisions and people.
- Make business decisions based on facts, not storytelling. You can make 1,000 decisions a day based on facts. A story can be confusing, distort realities and postpone important, and sometimes obvious, decisions.
- Make people decisions based on “where they are now” and not solely on facts. People decisions last forever. They define our culture and compassion. Inspire when appropriate. Sacrifice where you can. Our actions will define our future.
I spent significant time this weekend reviewing our previous economic forecasts and consuming additional housing research, particularly from John Burns Real Estate Consulting. I typically try to narrow all the research and noise (news stories) into simple facts.
For California, our real estate markets have been driven by our vibrant job market. For the past five years, in SoCal and NorCal, we have been generating 2.5 and 3 times the number of new jobs vs. new housing units. This by itself puts demand well ahead of supply and drives appreciation.
What we are likely to see is net job loss vs. job creation. So, our forward-looking barometer, aside from the HNWI, will be how the job market performs while SIP and then post-SIP.
The recent March 2020 job report was weighted to early March and will be revised via the April report. Under the current circumstance, the April report will not be positive.
If you have some time on your hands, you may be interested in reviewing our November 2017 Economic Outlook for 2020. These are the links from the 2017 LA and SF PUI Economic Outlook 2020. Interesting observations about how jobs impact our real estate markets. Worth the perspective for sure.
Welcome back to a weekday, if you can distinguish.
This is Where We Are Now.
Thanks!
Mark
Mark A McLaughlin
Work From Home — Day 22 — Closing Bell
New Escrows and Cancellation Report
5:00PM PST
Team –
April 2020 closings are currently running approximately 30 percent below last year and approximately 35 percent below budget. This is a formidable and encouraging surprise to me considering our current SIP state.
Cancellations year-over-year are dramatically higher than 2019. In March 2020 we experienced 175 cancellations vs. 62 in March 2019. This is nearly three times year-over-year change. These 175 cancellations were expected to close 94 in March, 71 in April and a handful per month May to September 2020.
The new escrows generated in the second half of March will likely be more durable (less likely to result in cancellation) as they were generated in the SIP environment.
The mortgage environment is shifting daily. Please remain focused on Freddie, Fannie, Ginnie Mae and portfolio lenders [large banks] or correspondents for jumbo products.
New escrows have clearly slowed as it’s tough to write and ratify without first a showing.
Our team impresses me daily with both your resolve and compassion. In no time at all, we will be planning the best in class execution post-SIP.
Remember, I am a phone call away if you need anything.
This is Where We Are Now.
Thanks!
Mark
Mark A McLaughlin