Santa Clara County Assessor Larry Stone in August shared his analysis of COVID-19's impact on the economy and the local housing market with members of the Silicon Valley Association of Realtors. Stone had warned Realtors last year that a recession was imminent since recessions are cyclical, but he predicted it would be a normal recession, a "soft landing." Due to COVID-19, Stone said the economy is facing more of a "crash landing," with unemployment reaching Great Depression levels. He said according to some analysts the economic impact of this recession could remain for a long period of time, possibly 10-12 years.
Stone indicated California has "the worst unemployment rate in 80 years." Unemployment hit 15 percent in June, fell to 13.7 percent in July, but a far cry from the year-ago estimate of 4 percent. Silicon Valley, which has led the country's economic prosperity for nearly a decade, recorded an unemployment rate of 9.3 percent in July compared to 2.8 percent a year ago.
"We are dealing first with a health crisis, not an economic crisis. We must resolve the health crisis if we ever expect to resolve the economic crisis," said Stone.
All economic indicators are devastating. GDP has declined at an annualized rate of 33 percent. Consumer confidence is down 30 percent from pre-COVID levels. Stone said during the Great Depression income declined 12 percent in a single year. The U.S. exceeded that level in the first half of this year.
Stone noted the huge increase in unemployment is directly related to the pandemic, and the outlook is grim. There are fears that many of the job losses will be permanent.
Much of the brick-and-mortar retail industry was on life support before COVID-19. The problem is not cyclical, said Stone. "I believe it's a 'forever' trend. Traditional retailers were very late to e-commerce."
Hit are hotels, the entertainment industry, travel, restaurants, food and beverage outlets, supermarkets, and major malls. Nearly every major retailer is closing stores and more bankruptcies and closures are expected.
"The U.S. is simply 'overstored'!" exclaimed Stone. He said one projection is that 20,000 - 25,000 stores, of which 60 percent are mall-based, will close permanently this year.
Winners in this pandemic are the healthcare industry and online entertainment and shopping. Netflix, teleconferencing like Zoom, online based and e-commerce businesses like Amazon, Apple, Google, and Facebook are doing well.
As for housing, Stone remarked, "The housing market was blind-sided by COVID-19."
Home sales declined sharply at the start of the pandemic, but are slowly recovering due to low mortgage interest rates and the housing shortage. Apartment rents have declined. Office leasing in Silicon Valley is at its lowest level in 16 years. Some say Silicon Valley is better insulated to withstand the recession compared to other markets, but cancellations and delays of major real estate projects are taking place, and more are expected.
"The new normal will be anything but normal," said Stone. "COVID-19 is re-ordering virtually every industry."
The long-term future of the job market "remains somewhat clouded," said Stone. Studies predict nearly 50 percent of jobs could be replaced by the current methods of automation and artificial intelligence by 2030.
Stone quoted a Wall Street Journal article that stated, "Economic re-opening will be fitful, fragile and political." He said there is much uncertainty about the future. How offices will re-open, what the office environment will look like, and how life will be will depend on how long the pandemic will remain with us.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
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