October 22, 2020
Peter Linneman’s March 25 forecast of the economic and social impacts stemming from the COVID-19 pandemic has proven highly accurate—including his prediction that social unrest would occur. “I’m great at predicting bad news,” he joked on Wednesday’s edition of the weekly Walker & Dunlop webcast series, where he made his third appearance in the series to review his original forecast and chart what’s ahead.
One thing the Linneman Associates founder didn’t see coming was the surge in single-family home sales. In fact, Linneman recalled in Wednesday’s one-on-one discussion with Walker & Dunlop CEO Willy Walker, he predicted in March that the single-family market would collapse amid massive job losses.
What has made the difference, Linneman said Wednesday, was “the involuntary savings that occurred.” A potential homebuyer who had to cancel vacation plans or NFL season tickets due to the pandemic now had money for a down payment on a house.
Nonetheless, Linneman remains bullish on multifamily’s long-term prospects. That’s in contrast to a few of Walker’s other recent guests, who have favored single-family, and in particular single-family rentals.
For one thing, the current wave of move-outs from urban core markets doesn’t necessarily signal a long-term trend. For another, in the long run younger would-be homeowners will still be hard-pressed to come up with that down payment.
Although Linneman doesn’t think we’ll see as many distressed buying opportunities as the Great Recession produced, that’s due in part to Dodd-Frank rulemaking that has required banks to be better capitalized than they were a decade ago.
More broadly, he said, “The economy feels much weaker today than in 2009,” and the current data don’t reflect the true extent of unemployment. An “apples to apples” comparison of February’s labor market to today’s would yield an unemployment rate of 13% to 14%, rather than the 8% being officially reported, said Linneman.
For the office, retail and hotel sectors, a tipping point for a return to normal levels of occupancy will be “a combination of health and psychology,” Linneman said. That combination will come about when a COVID vaccine is widely available and it’s no longer necessary to “imagine” people in offices or traveling.
As a rule of thumb, Linneman suggested watching what happens with attendance at stadiums. If football games are being played in front of in-person spectators currently, then it’s a matter of a few thousand attendees at venues that can accommodate 50,000 or more under normal circumstances.
“When that’s back up to 70,000, then we’re back,” he said.
Replays of the Oct. 21 webcast are available by clicking here.
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