“Sudden Stop” Due to Pandemic Brings CRE Market Sentiment into Steep Dive
As would be expected given the COVID-19 pandemic and resulting economic shutdown, the Real Estate Market Index (RMI) from advisory firm RCLCO took a steep dive compared to six months ago. The plunge in expectations among industry leaders is reflected in RCLCO’s Mid-Year 2020 Sentiment Survey.
The latest RMI, released just before the July 4 holiday, fell into the basement to a value of 9.2, the lowest level since RCLCO began recording the index at the end of the Great Recession. The previous low was recorded in the fourth quarter of 2018 at 37.5, in the wake of the federal government shutdown that occurred in December 2018.
Prior to the coronavirus pandemic, in Q4 2019 the index was just under 65.0. RMI values in the 60 to 70-plus range are typically indicative of very good market conditions. Values below 30 typically occur doing periods of economic and real estate market stress/recession.
RCLCO says the nearly 56-point drop in so short a period mirrors the speed and depth of the damage that the pandemic has wrought upon the U.S. economy and real estate markets. “This isn’t a ‘cycle’ that we’re in—it was a sudden stop,” said Brad Hunter, managing director at RCLCO. “Many sectors of real estate leapfrogged entire stages of the normal real estate cycle and went straight to the bottom.”
If there is a silver lining, RCLCO says, it’s that respondents expect conditions to improve significantly over the next 12 months. The RCLCO Future RMI dropped somewhat from the Q4 2019 reading of 52.3 to 36.8—down more than 15 points, but still a noticeable improvement on the current reading.
“The U.S. economy and job markets have been in full-blown downturn mode over the past several months, but may be finding the bottom now, and the economy and real estate markets (with some notable exceptions) are expected to return to growth mode over the next several quarters,” according to RCLCO.
For comments, questions or concerns, please contact Paul Bubny
- ◦Economy
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