The fall out from this will take 24+ months to rear it’s ugly head fully. By that I mean the wave of first commercial foreclosures, then residential.
Commercial was already hanging by a thread, with brick-and-mortar stores shuttering and the bankruptcy filings of JC Penney, Forever 21, and J.Crew looming. Macy’s isn’t doing much better, and KMart gasped it’s last. Sears is going to go poof too.
This will leave huge “anchor” stores empty in malls that are already struggling to fill spaces.
Then the secondary effect of “telecommuting” through this crisis will emerge. My son works for a company that provides “help desk” services for companies. He has not stopped working through this but of course is now 100% work from home. Guess what? He is planning a move to TX next year and his employer said “keep your job when you go, why not?”
Thousands of companies now realize all that expensive office space is a waste of money. Meaning they WILL NOT BE GOING BACK. Disney has already said they are slashing their office space use significantly.
This will in turn spark defaults in the office space sector. These buildings rely on janitorial and maintenance staff. These people will be laid off never to return. Any secondary businesses in them, like small restaurants, nail salons, hairdressers, will see their foot traffic business dry up and they will leave too.
Commercial lending has been propped up for a long time on low interest rates and crazy loose terms. Borrowers have just been recycling their debt every 2 years, many on interest only notes.
Then we move to the residential foreclosures. When people do go back to work (if they do), they will now be, most likely, 4-6 months on payments of their mortgage. Their lender gives them a forbearance and tacks it on the end. Ok. But what about the water, sewer, and taxes? Insurance? If you don’t keep up on your homeowner’s and the bank finds out, they can and will foreclose on you in most cases.
And condos…are people keeping up on their HOA fees? HOA’s are in first position and can foreclose for back fees. This is extremely problematic for associations that are small and depend on the steady flow of monthly fees to pay THEIR master insurance and maintenance. Larger complexes typically have a reserve, but this will go bye-bye fairly quickly. If some of these units are rentals and the tenants are not paying rent, it is unlikely the owner will pay HOA. Good luck evicting the tenants through all of this. In some complexes the tenant ratio is very high, 50% or MORE.
Then we have the multi family sector, which has been also massively overpriced and propped up by historically sky-high rents, that people are not paying. Please understand that tenants in these places tend to be service industry workers. Hotels, bars, restaurants. The places that are closed, many are gone forever. And when we do open, it will be with restricted customers anyway, further limiting tips for these employees. Many will just stay on unemployment and ride that out to the end because it’s more money. And not pay their rent out of either, sometimes even if they can.
Lenders just recently tightened up their lending criteria. Credit scores must now be 700 minimum for FHA (previously 650), with higher deposits required.
It is a good bet that credit scores have already tanked because people are not paying their credit card bills or car payments. So a huge sector of the market will be gone in a instant.
Cars. Ah yes…good bye 72 month loans with no money down. And so used car prices will jump significantly, meaning most people will have to buy cheap clunkers that they cycle out of every 1-2 years rather than fix.
What people don’t realize is we are just overpriced for everything in this country. Housing, rents, cars, food. The downward pressure of things to cost less will eventually happen, it’s just going to meet resistance and take longer.
It is a fact of life that when demand goes down, prices go down.
If we bring back manufacturing, it can never be like it was in the 70-80’s. Plush union jobs with high wages and fat benefit packages. It’s going to be a decent, living wage, with probably some kind of employee retirement participation plan and medical, and that’s it. People will choose to take non-union jobs that actually PAY over zero work but marching in a picket line. The cost of these goods will go down due to less demand and less cost to make them here over time.
Making 15 bucks an hour to work in fast food will be considered a joke, as now these companies see robot order takers and less in-dining demand will mean smaller store footprints, meaning less humans to clean the tables, mop the floors, and take out the trash. I seriously would not be surprised to see McDonalds no bigger than a kiosk where your food is just passed out a sliding drawer at the drive through.
Movie theaters are already on the way out too. Home viewing choices continue to rise, and the virus lockdowns has seen “first run” features being offered at home for $19 bucks for the whole family. That’s a bargain in comparison to 15 or more a person. This will start happening more and more, with promotion being more event oriented rather than opening-night oriented. The days of the mega-plex are over. I think they will pivot to a smaller, more luxury themed type of theater with food and alcohol package plan type experience.
The very good thing that may come out of this? People are already getting outside more, which will hopefully lead to more actual activities with friends and family.
All of this bullshittery and assholery manipulation will mean people will realize that online platforms can be used for a lot of evil. And govern themselves accordingly. Change will happen, it will just take time.
http://www.investmentwatchblog.com/you-aint-seen-nothing-yet/
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
| 