The COVID-19 Crisis is far from over. Unfortunately, the International Monetary Fund warned it will turn into the ‘worst economic fallout since the Great Depression‘. How can real estate agents survive the coronavirus crisis? What lessons can we learn, and what attitude do we need to adopt, to survive, prosper, and thrive despite the Coronavirus Crisis?
First, we need to zoom-out and see what the current situation is. Then, we can discuss survival of the fittest, applied to Real Estate. Being part of the survivors (economically) is possible, and it’s the only way forward, for those who never give up.
COVID-19, Current Situation
The current situation is definitely terrible. Health crisis, economical crisis, humanitarian crisis and debt crisis are summing up, creating a horrible context. Before we see how we can thrive despite this context, let’s describe the situation we are in, objectively.
Unemployment Figures Globally: Shattering Records
Crisis is not a word powerful enough to describe what is happening now. According to the International Monetary Fund, the Coronavirus Crisis is the worst economic crisis since 1930s depression (BBC). More than 17 million American workers have filed initial claims for jobless benefits in the past 3 weeks. In France, more than 8 million workers are now in “partial unemployment” (franceinfo). Also in Europe, Spain registered 900,000 job losses since the start of the outbreak (ElPais).
Death Figures: More Than 100,000 Deaths
More importantly, 113,000 people have now died from COVID-19. Since we started writing about the coronavirus crisis, on March 12, the situation has changed drastically. On March 19, there had been “only” 207 deaths in the U.S., and the world was looking at China and Italy, topping the sad ranking with 3,000 deaths each (FBW). Sadly, coronavirus fatalities have now topped 20,000 in both the United States and Italy (see chart below).
Real Estate: How to Survive the COVID-19 Crisis?
It might seem displaced to speak about the impact on real estate, as thousands of people are dying each day. However, if you are safe, the priority is economic recovery. How can you make the best out of 2020, knowing that it is going to be a difficult year for most real estate agents?
How Many Real Estate Transactions in 2020?
Home sales are plummeting, and the number of homes sold this year will likely be 25% to 50% inferior compared to last year. As an example, the number of residential sales across the U.K. is estimated to “fall 38% year-over-year in 2020” (Knight Frank).
There were 734,000 residential transactions last year, so an annual 38% decline will equate to 278,920 fewer homes sold in 2020.
MansionGlobal.com
If 38% fewer homes are sold in 2020, what does it mean for real estate agents? Well, it means that Real Estate has just become more competitive than ever before.
It’s Half-Time: Be Ready When the Whistle Blows
One thing I watched this week, was Mike DelPrete’s video “The Real Estate Pandemic Survival Guide Webinar“. As there were only 6,000 views so far, we might conclude that this video was viewed mostly by people who work in Property Portals (real estate websites), or Real Estate Agencies.
Out of the many lessons we can learn from this video, we can remember several very important things:
- Visitor Traffic Drop: 25% to 40% on all major portals (5’30”)
- New Listings Drop: 75% (11’40”)
- Survival is everything (25’28”)
- Expect 50% drop in transactions volumes in 2020 (27’00”)
Expect a 50% drop in transaction volumes in 2020 compared to 2019
Mike DelPrete
As a consequence, the best advice for real estate agents we can take away from this video is: Be Ready When the Whistle Blows. Consider that we are at half-time. Half-time because we have stopped buying and selling homes. Half-time also because we can consider this year will only see 50% of the usual real estate transactions. To survive, prosper or thrive, you need to gain market shares, more than ever.
Health Crisis, Economic Crisis, Humanitarian Crisis, Debt Crisis
The COVID-19 Crisis will be worse than the 2008 global financial crisis. Different types of crisis are all coming together, creating a negative spiral. The health crisis has led to an economic crisis, we all know this. In turn, this has led to humanitarian crisis in countries such as India (France2). Then of course, the Debt crisis is going to make all of this worse (Financial Times). To survive the coronavirus crisis, you must understand their implications:
- Health crisis
- Economic crisis
- Humanitarian crisis
- Debt crisis
But now, what does that mean for real estate?
The 2008 financial crisis was just a dry run for the 2020 Coronavirus Crisis
Kenneth S. Rogoff, a Harvard economist (NYTimes)
Consequences on Real Estate
Consequences for Real Estate Markets
Several consequences are obvious. As unemployment goes through the roof, the number of real estate transactions might be largely inferior in the 2020s than it was in the 2010s. Also, real estate prices may (or may not) go down during 7 years, as they did in Spain from 2008 to 2015. Nobody knows for sure.
One clear consequence however, is that there might be a huge debt crisis. First, companies and people are getting indebted, to survive the current economic crisis. Cash flow is at the center of attention. Also, skyrocketing government-debts might be a major problem for the 2020s. As the Wall Street Journal puts it: “Coronavirus Crisis Legacy: Mountains of Debt“.
Debt is a vicious friend. Although it saves the present, it condemns the future.
What will happen in countries such as Italy, France, Spain, Portugal (among many other countries) where government debt ratios are expected to go well above 130% of GDP (Financial Times)? What will happen in Argentina, which heads for ninth sovereign debt default?
One likely issue: in the long-term, interest rates may go up as banks become more risk-averse, due to the losses registered in 2020 due to bad-debts.
Another consequence for Real Estate is that Loan to Value ratio (LVR) might be affected. LVR is the amount of your loan compared to the value of your property. In other words: How much deposit do you need for a mortgage? In countries such as France, banks frequently finance up to 100% of the value of the property, hence making it easy for people to buy homes. In the UK, you’ll usually need a deposit of at least 5% of a property’s value to get a mortgage. If banks become more risk-averse, and require a deposit of 20% or more, then property prices might go down significantly in many real estate markets.
So now is a good time to look again at the UBS Global Real Estate Bubble Index 2019. Will Munich, Toronto, Amsterdam, Hong Kong, Frankfurt, Vancouver and Paris be the worst affected? It’s a possibility. New Zealand, Canada, Sweden, Norway, Australia: these are real estate markets that were identified as at risk of a housing bubble, before the COVID-19 situation happened. Will COVID-19 burst these real estate bubbles? We don’t know. RE/MAX says odds are low in Canada. But Bloomberg says “Another US-Wide Housing Slump Is Coming“. So we’ll have to see, market per market, what happens next.
Consequences for Real Estate Agents: Never Give Up
Consequences for Real Estate Agents? As for most jobs, there is only one lesson. To survive the coronavirus crisis, never give up. Decide for yourself that you want to be a survivor. Do everything in your power to be one of the best. Be ready when the whistle blows. Be more visible than usually. Think positive: there will be real estate transactions.
There will be buyers, there will be sellers. Fewer than before, yes. So do everything to increase your market share. Be more competitive than ever before. When a market shrinks in size and volume, there is less money overall, that doesn’t mean there is less money for you. Never give up. And remember that success always comes to people who refuse to give up.
How we spend our quarantine time will soon be either a regret or a win and a head start.
Firas Al Msaddi, CEO of fäm Properties Dubai, one of the best real estate agencies in Dubai (FBW)
Sources: Harvard Business Review, CNBC, South China Morning Post