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With the economy sputtering, why is real estate soaring?

After a momentary pause in March and April, it looks as though the covid-19 pandemic has intensified the desire many people have to buy a home. The National Association of Realtors said that its index of pending sales rose to 99.6 in May, the highest month-over-month gain in the index since its inception in January 2001. (Charles Krupa/AP)

Q: Do you think unemployment will skyrocket when the Paycheck Protection Program (PPP) money runs out? I know many business owners who will pay employees with PPP money for eight weeks then lay them off. I will be doing that with 25 percent of my employees.

Can you guess at an unemployment rise number as the stimulus funds run out? I heard a restaurant guy in New York being interviewed. He said that he has 600 employees who will get paid for the eight weeks under the PPP. After that he plans to fire them and have them go on unemployment, so he said, “What have we gained?”

I think we are in for a huge increase in unemployment after the PPP money runs out, and I’m just wondering how you think this will affect the housing market, stock market and the economy overall.

A: Other than the housing market, which we’ll get to in a moment, we don’t see any silver linings with the covid-19 situation. As of this writing, according to Johns Hopkins University, more than 143,000 people have died in the United States (more than 625,000 globally) since the pandemic began, more than 4 million Americans (and more than 15 million globally) have contracted the disease, and any progress that was made in terms of containing the virus and opening the economy appears to be regressing.

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In March, the nation’s leading health experts and economists reasoned that we could all stay put, take the economic hit and let the virus run its course. We thought that the economic hit would be huge but would dissipate once the virus was under control. That hit was immediately reflected in the stock market plunge, negative economic indicators and historic unemployment numbers.

But now we’re in the middle of summer and the stock market is running extremely hot (especially certain tech stocks), while interest rates are at all-time lows. About 32 million people are unemployed, and, yet, thanks to the unprecedented unemployment assistance, fewer people are defaulting on credit cards, mortgage and student debt payments this year than last year.

So, what about the housing market? Well, even in 2019, we were in a seller’s market, with not nearly enough homes being put on the market for all the buyers who wanted to purchase. After a momentary pause in March and April (when Sam saw new real estate deals come to a halt), it looks as though the covid-19 pandemic has intensified the desire many people have to buy a home.

A report from real estate brokerage Redfin shows 27.4 percent of users looked to move to another metro area in the second quarter of 2020 (a complete shift for millennials and Gen-Zers, who were looking to stay in diverse, urban areas for the lifestyle benefits). These users want a roomier house with some sort of outdoor space and are willing to drive farther to get it (especially if they can now work from home).

And the housing market is on a tear. It seems that people are trying to buy and sell as quickly as they can. Sam has experienced multiple bid situations on many of his deals. A quick Internet search reveals anecdotal stories about home-buyer bidding wars in Detroit, Milwaukee and Greenwich, Conn.

In another Redfin report, Brian Walsh, a Redfin agent in Tampa, said, “The coronavirus hasn’t dragged home prices down; in fact, we’ve seen just the opposite — prices are rising in spite of the pandemic.” Also noted in the report, the median home price in Tampa was up 8 percent year over year in June.

Walsh continued: “Every house that is the slightest bit cute, fixed-up and priced right gets multiple offers — some up to 10 or 15. The winning offers are almost always all cash with zero contingencies.”

Then there’s the demand for more housing. In 2013, Lawrence Yun, chief economist for the National Association of Realtors, said that 1.4 million homes needed to be built to meet the demand for that year. Each year we don’t build enough, we fall further behind, and there still aren’t enough new homes being built to keep up with demand.

As of June 2020, we were at 1.186 million housing starts, which is 17.3 percent above the revised May estimate of 1.011 million but 4 percent below the June 2019 rate of 1.235 million. Between the hundreds of thousands of homes that went into foreclosure 10 years ago and were bought by hedge funds as rental properties, the homes that naturally reach the end of their use and need to be replaced, and the much tougher financing challenges developers face today when building single-family homes or condos (it’s far easier to finance rental property, so that’s what’s being built), there are simply not enough homes for buyers to buy.

As for the economy, it’s in tough shape here and around the world. Airlines are hemorrhaging money; tens of thousands of restaurants have closed permanently, and those that are staying open have a hard time making enough money without eat-in diners (and their bar bills); entertainment venues have no business; and sporting events are just starting up without fans in their seats. There’s a great deal of uncertainty as to what will happen in the near future or until a vaccine is widely available. We do agree that unemployment is going to rise and stay high until then.

As for the PPP, we disagree that it was a waste. The PPP was a well-intentioned subsidy designed to help employers keep their employees for about eight weeks. Global health experts thought that would be enough time to get everything under control, and in many countries that was enough time. But the virus is raging in the United States, and nothing here is back to normal.

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If you got your PPP money in mid-April, it ran out in June. And if you got it in mid-May, it ran out in July. Companies whose businesses are lagging will have to lay off workers or shut down. Cities and states stand to deal with trillion-dollar losses in revenue because people aren’t traveling as tourists or for business, spending money in restaurants or even driving.

Ilyce was booked to speak at many conventions and conferences this year. Most of these have been canceled, and she’s waiting to see what happens with the October events. These events affect tourism, hospitality, hotels, events, restaurants, shows, movie theaters, airlines, car rental companies, hotel and home booking sites, and many other businesses, as well as all the businesses that supply goods and services to those businesses. The ripple effect is huge throughout the economy.

We live in an interconnected world. “Free” money can only go so far and do so much. But it is a lot better than nothing; no one will like what happens if the federal government decides to shut off the spigot. Like everyone else, we’re waiting to see what happens next.

Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (Fourth Edition). She is also the chief executive of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through her website,

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