Chief economists are in high demand these days as everybody is trying to figure out what’s happening with the economy. Meyers Research is doing the same thing and drilling down into the future of the housing market. Chief economist Ali Wolf has been staying busy authoring blog posts and hosting webinars to keep clients and stakeholders up to speed.

In a webinar on last Wednesday (March 18), she took time to remind everyone where we were economically a short time ago, “The baseline is that we had an unemployment rate that was at the lowest level in 50 years,” she says. She also states that the housing market was off to a strong start in February and consumers' personal savings rates are higher than they were compared with the big crash in 2008.

Wolf characterizes the economy as resilient but vulnerable thanks to years of trade wars. The phase one trade agreement brought a sense of relief and issues with Iran seemed to rise and fade away. And then COVID-19 came ashore. “This is something that is an economist’s worst nightmare,” says Wolf. “We could not have seen this coming, this is a black swan event. We need to make sense of, ‘What does this mean?’”

Ali Wolf, chief economist for Meyers Research.
Ali Wolf, chief economist for Meyers Research.

Wolf breaks the economy into four segments: consumers, businesses, government, and trade. COVID-19 is mainly impacting the consumer side, which powers about 70% of the country's economic engine. In her mind, a recession is inevitable. “If we’re not already in a recession this month, it’s very likely we’ll fall into one next month,” she says.

Wolf believes CEO confidence was also a little shaky before the virus hit. She’s expecting hiring plans to be placed on hold and looking for layoffs—especially in Las Vegas, Orlando, San Antonio, and San Diego due to a high concentration of leisure and hospitality jobs in those areas. Unemployment claims will go up in numbers that will be “shockingly large.”

The industrial side of things was already slow as recent reports show a slump in trade. The port cities will suffer, including Long Beach and Los Angeles in California and Jacksonville, Fla. Low oil prices are adding another whammy as Saudi Arabia and Russia continue to fight a price war, which hurts the domestic oil business. Houston and parts of Colorado are especially vulnerable. The retail side will feature closed stores and layoffs in the coming weeks.

For a better look at the future, Wolf points to China as being a month to six weeks ahead of the U.S. in terms of the virus effects. China’s retail numbers were off 20% for February. In terms of a recovery, Wolf is proposing two possibilities that will be measured by drops in the GDP. A negative 3% GDP would be expected if April continues to be as bad or worse than March.

She’s hoping to see a sharp, short drop with a rebound starting in May or June. There is a precedent for a short-version recession, which happened in the 1980s and lasted only six months. Wells Fargo, JPMorgan, Moody’s, and Goldman Sachs are also forecasting something short and steep. Of course, all forecasts are subject to change.

The second possibility is a long, drawn-out recession. The possibility increases when considering high levels of government debt, student debt, corporate debt, and automotive financing debt. The determining factor of which way things go will be policy. Wolf believes we need a dose of strict containment measures, economic stimulus, warmer weather, and, eventually, a vaccine.

She also referenced the virus as being an “exogenous shock” as opposed to a full-blown crisis. Wolf expects lending rates will stay low until things get back on track. She is hoping for a correction to the somewhat dysfunctional relationship currently happening between 10-year and 30-year treasury bonds, which impacts mortgage rates.

For the real estate side she predicts that virtual tours will become the norm. Grand openings are already being canceled and delayed. Sales have slowed in the already soft, luxury market and the 55-plus segment. Closings already scheduled are still moving forward. The virus has simultaneously induced shocks to both the supply and demand side of the market. Social media is also playing a role in things as there have been 1.1 billion mentions of COVID-19 on social media as compared with 56.2 million mentions of SARS.

She predicts plenty of layoffs, bankruptcies, and bailouts ahead, “but if we can get COVID-19 under control, it can be something that turns around fairly quickly, but, honestly, no one knows,” she says.

Wolf will provide a follow-up COVID-19 update webinar on Wednesday, March 25th, 2020 at 2 PM EST (11 AM PST), covering changes in the situation over the week to come as well as housing market and supply chain impacts. Click here to register.