Meanwhile, as economists started to rule out a housing bubble, concerns regarding a severe financial crisis intensified due to the Federal Reserve’s massive infusion of capital into the private sector. The yield spread figure going negative for a few months in mid-2019 was one of the early indicators of the upcoming market volatility, while the Urban Land Institute’s economic report published in May predicted an unusually low treasury rate for the next two years, averaging 0.8 percent in 2020.
As of July, the U.S. unemployment rate stood at 10.2 percent, according to the U.S. Bureau of Labor Statistics. The rate is encouraging when compared to previous months, but is still above the highest rate during the Great Recession—10 percent in October 2009. At the same time, the stimulus package that Congress passed in March was more than double the financial aid offered during the last downturn. Several other parallels exist with the 2008 crisis, but most relate to the financial aspect rather than the real estate aspect, which was at the core of the Great Recession.
What exactly defines this economic crisis? The current economic slowdown “is distinguished by the abruptness and depth of the decline in activity as well as the drivers—a health crisis motivating a broad and self-imposed constraint on activity,” said Sam Chandan, associate dean at New York University’s School of Professional Studies Schack Institute of Real Estate. Meyers Research Chief Economist Ali Wolf also agrees that this economic slowdown cannot be compared to any other recession. “This recession will go on the record for being the sharpest and shortest in history, with the lingering effects lasting for years,” she said.
Looking at the real estate sector, particularly at investment activity, Marcus & Millichap Senior Vice President John Chang noted: “In the second quarter, commercial real estate sales were down about 60 percent compared to last year. That is in alignment with the downturn created by the Global Financial Crisis which generated a transaction reduction of 58 percent from peak to trough.” The major difference, however, is that while the sales slowdown happened over a longer period during the 2008 crisis, real estate activity during the current crisis can be characterized as “a very fast-paced shock wave event.”