Sunday, November 1, 2020

This has been a weird "recession"

 

Weekly, aggregate pay-rolls

Economists define recessions as two quarters-in-a-row where key metrics decline.

The problem with that definition is that a minimum of six months (two quarters is half a year) must pass before a hiccup is officially declared a recession. EVERYBODY knows it is a recession long before it is declared.

In normal economic downturns the pain is relatively wide-spread. Many people have less discretionary money as the hours they are scheduled to work are reduced or their jobs are eliminated.

Early in the downturn most people stop spending as much on trinkets and toys.

Later in the downturn many people start bailing. They start selling some of their toys. A toy being defined as anything not required to carry you to work or sustain life.

If you are a prudent money-manager then you have a few dollars squirreled away and can help the people who need money out. No, you are not exploiting them. They NEED that money more than they want the toy.

This downturn has not seen the number of campers and ATVs and snowmobiles and trailers and lifted trucks parked by the road with For Sale signs in them that other downturns had.

Where did the pain go?

Well, one sector that is absolutely monkey-hammered are owners of rental property. There is a moratorium on evicting tenants who choose to not pay rent. The property owner is still on-the-hook to pay property taxes, maintenance, debt service and even utilities if they are rolled into the rent.

The market for rental properties has been eviscerated. One wonders if it was a plan. Will Feinstein and Pelosi and and the other billionaires in government scoop up thousands of prime properties for pennies on the dollar?

This is a classic Big Government power-play. Buy positions in some obscure industry like solar or ethanol and then write legislation that forces the public to buy the products (or sell them dirt cheap).

Conservatives hate that because it introduces massive distortions in the market and destroys consumers' ability to choose.

The final joke may be on them. Mom had a neighbor who cashed out and moved to San Francisco a year ago to open a bed-and-breakfast. Rotten timing.

Even if buyers materialize to buy properties from distressed sellers in NYC, San Fran and other formerly-trendy cities there is no guarantee that they will regain their trendy status as corporations are forced to recognize the reality of telecommuting.

4 comments:

  1. Part of it is a lot of people got the extra unemployment payments that made them more money than many of their jobs were paying them.

    Both commercial real estate and residential real estate are in deep trouble and with the CDC ban evictions on residential non-payers are still difficult.

    The pain is only hitting some sectors and keeping a stable lid on the rest for now.

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    Replies
    1. Entertainment/Hospitality was hit hard.

      The distortions will percolate through the economy but since it is novel it will surprise many people. Me included.

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    2. It's a shame that eviction bans can't go hand-in-hand with moratoriums on mortgage payments, local real estate taxes, and insurance premiums, just for on rental property. Push some of the pain back onto the financial community, who all seemed to skate during the 2008-2009 fiasco.

      Just goes to show you who the "Establishment" is trying to take care of, really.

      Delete
  2. Another problem which will become more evident is that the mortgage debt on these rentals was sold in tranches to investors world wide. And a significant portion was sold to retirement funds in the US to fund retirement payments. And it's easy to see where that is heading when the defaults and foreclosures begin. --ken

    ReplyDelete