FHBA LEGISLATIVE & NAHB COVID - 19 UPDATES March 27, 2020
Coronavirus: Florida Real Estate Impacts By Brad Hunter Managing Director RCLCO The Florida real estate industry is being severely impacted by the coronavirus, and it will get worse before it gets better. It is clear that the sectors of real estate that have been hit hardest so far are hotels, restaurants, bars and other entertainment retail (particularly in tourist-driven areas) followed closely by retail and housing (particularly second-home and luxury homes). Supplies that the builders and developers need are being interrupted more and more as workers stay home, and due to business shutdowns, quarantines and curfews. Layoffs, only now starting, will lead to further contraction in consumer spending, starting a downward spiral of economic activity. Together, these forces are expected to push the economy into recession, which is probably under way already. The good news is that China’s factories and businesses are now re-starting, which could be cause for optimism regarding a fairly rapid return to normal economic activity and strong real estate markets. There are a lot of moving parts, so let’s dig deeper.
Continued from Page 1 Many Impacts on Florida Florida as a state is exposed across a number of important industries, including: Hotels Theme Parks Conference Centers Casinos Sports Venues Restaurants and Bars Cruise Ships (having a major impact on the Ft. Lauderdale economy) Additionally, it remains to be seen how Florida’s congregate senior housing industry will be impacted. The tourism industry will be hit in two different ways: (1) adirectimpact from contagion concerns and (2) anindirectimpact from declines in stock values and reduced income which will translate into people feeling less wealthy and put a damper on travel. The Impact on Housing and Homebuilding Housing data have not shown a large drop yet, but homebuilders are feeling not only the demand pullback from home shoppers staying home in droves, but also the supply impact of materials that they normally import from China (supplying 30%). Builders are already reporting lower sentiment, but bear in mind that half of the National Association of Home Builders (NAHB) sentiment index responses were collected prior to March 4th, so the stock market gyrations and still-mounting impacts from the contagion were only partially reflected. The sentiment report due out next month will likely show a much steeper drop. More than 20% of builders who were just surveyed reported some disruption in supply due to virus concerns; NAHB says that the percentage is higher than this for builders who gave their response after March 6th.
Continued from page 2 Builders are generally seeing significantlylower traffic through their sales centers, some of which could be just a delay related to short-term social distancing efforts, but some of it is assuredly an actual reduction in demand due to buyer feelings of economic insecurity. There is also growing concern about tighter lending conditions for non-conforming mortgage loans. With all of this going on, builders are saying that their land acquisition and development spending will slow in the near term. Even more worrisome is the impact that the stock market crash will have on consumer spending. People who have lost a lot of their “paper” wealth will spend less on discretionary items, and those who are retired, or close to retirement, may be drastically changing their spending plans. Those who had been planning to buy a home in an active adult community may have to shift their plans, and that could impact absorption rates at those developments. Needless to say, there could be a serious impact on nursing homes and assisted-living facilities as well, at least in the near term. Therental apartmentindustry is now preparing to deal with tenants who have lost their income and are unable to make the current month’s rent. Landlords should seek to emphasize occupancy, which might mean giving tenants some leniency in the near term. There will be downward pressure on effective rents in the next few months. The long-term outlook for rentals is still bright, however, in light of demographic shifts that are still unfolding. Lease renewal rates were strong before the crisis, and apartment construction was running at more than 500,000 units annually right before the crisis, so it has some ground to give. Class “B” properties will likely fare better than expensive “A” properties or Class “C” developments that may be more susceptible to job losses and lost income among tenants. Some renters will “double up” and we may see some “boomerang kids” moving back in with parents in the near term. Underlying positive long-term rental trends will re-assert themselves after the crisis passes. Thesingle-family-built-for-rentbusiness might be a long-term beneficiary as we may see a shift toward larger units that better accommodate working from home. What Lies Ahead? One thing that makes this economic disruption especially problematic is that it is affecting both demand and supply. On the demand side, the answer depends on how quickly the outbreak will be contained, meaning when the rate of growth in new cases flattens out and begins to fall off. At that time consumers will start spending again, and the economic engine will start humming once more. The disruption to the supply side this time may take longer to restore the supply chain, particularly if the outbreak is not contained evenly across the globe, and thus may lag the bounce back in demand, which may in itself have some negative consequences, such as creating inflationary pressures in some cases. improvement. In the U.S., it is clear that the second quarter will be negative, but growth may resume some time in the second half of the year.
CLICK HERE TO VISIT THE FHBA COVID-19 RESOURCE TOOLKIT Some helpful links included in the tool kit are: Florida Small Business Emergency Bridge Loan Program Small Business Administration COVID-19 Guidance and Loan Resources Florida's COVID-19 Data and Surveillance Dashboard
Continued from Page 3 A recession is coming, or is already here. That seems clear. The optimistic case is that unlike in the Great Recession, once the virus is contained, and immunity starts to take hold in the population, even though supply chains will take some time to re-engage, it won’t be like the cold-start that followed the housing and mortgage crash. The cycle could look like a “V,” or possibly more of a narrow “U,” with a sharp drop but also a strong upswing, coming at some time in the second half of this year. The number of confirmed virus cases flattened out in China, and is about to flatten out in Italy and other countries, and China is starting to see a resumption of normal business activity. Data from Federal Express in China indicate that 65%-70% of small businesses are open again, and 90%-95% of large manufacturers are operating again. This implies that the economic ‘restart’ could be much quicker than after the housing and financial collapse. The first quarter GDP growth The first quarter GDP growth number for China is expected to be zero or negative, but the second or third quarter may show number for China is expected to be zero or negative, but the second or third quarter may show improvement. In the U.S., it is clear that the second quarter will be negative, but growth may resume some time in the second half of the year.
Dera Fellow GCBA Members, I hope you and your families are and remain safe during this difficult time. I imagine you are aware that the LBA has tasked the nations’ largest homebuilders (including but not limited to, Lennar, DR Horton, Pulte, Richmond America, Ryan, etc.) with collecting donations of N95 Face masks, Face Splatter Shields, Safety Glasses, and disposable gowns, to donate to the Nurses and Physicians on the front line of stopping the spread of Covid-19. Lennar Homes has been designated as the collector of these items in SE Florida and we have partnered with Rosen Building Materials to assist us in collection and distribution. Here’s what we know: 1. Our trades and suppliers have masks and eye protection equipment. They may not be fully stocked and they are all almost assuredly on back order, but that doesn’t mean they can’t spare a portion of their current supply for our drive. 2. It is likely to take hard work and stern conversations to secure coveted masks and eye protection from our trades but even if we can get 25 or 50 masks from each, we can collectively be responsible for thousands of lives saved. 3. I will work the health care industry to manage the logistics of picking up the equipment and delivering it to the facilities that are in the most urgent need. Here’s what I am asking you to do: 1. I need each of you to reach out to your team and have them start working the phones and getting commitments from your contractors and suppliers in each Division. 2. Please designate someone in your company to manage this initiative who can get results quickly. Please feel free to distribute this to letter along with the additional information I have provided within this message. In addition, to make the collection efforts easier, donated PPE Items may be delivered to my attention in our Palm Beach Gardens Office (Address below in my signature) as well as the Rosen location in Fort Lauderdale. Those that are donating are advised to contact Rosen (number provided in the “Response team” document”) ahead of delivery. I can be contacted via phone, text, or email at anytime as well to arrange for delivery or pickup. Thank you for your quick response and we wish everyone health and safety! Regards, Steven Dassa Vice President of Purchasing – PalmAtlantic Div steven.dassa@lennar.com www.lennar.com Direct: 561-345-6729 Mobile:561-722-8507 8895 N. Military Trail, Suite101-B Palm Beach Gardens, FL 33410
My name is Greg Sinclair and I am the VP of Support Services for Hospice of Palm Beach County (Trustbridge). Because I am also a CAPS certified person and a member of the NAHB, I received the email below. I am responsible for all supply chain activities for the organization so find myself in the same position as everyone else in the Country, trying to source critical PPE for our clinical staff. We are a not for profit hospice caring for 1800 patients in Palm Beach and Broward Counties. Our lack of PPE, like many others, is impacting our ability to care for our patients in the community and places our staff at risk. We are in desperate need of N95 face masks to provide necessary protection against this virus for our front line staff. You contributions to this effort will save lives and as such we are grateful. It is truly impressive what GCBA , Lennar and the other home builders and suppliers are doing for our community and the front line caregivers during this difficult time.Thank you in advance for your donations. Best Regards, Greg GregSinclair VP Support Services Trustbridge Phone: (561) 242-6238 Mobile: +1 (954) 270-0294 Fax: (561) 242-6240 E-mail:gsinclair@trustbridge.com Website:www.trustbridge.com
How the Response to COVID-19 Will Affect the Housing Industry An Update from Your HBA
As America responds to the novel corona- virus, COVID-19, and practices social dis- tancing to control its spread, the National Association of Home Builders is working hard to help its members respond to the economic effects. We want to make sure members are apprised of NAHB federation efforts to mitigate the economic effects of COVID-19. We also want to offer a sense of NAHB’s forecast in the context of the evolving economic slowdown. NAHB is making available to members a broad range of materials on its website. The materials can be found at NAHB.org/ coronavirus. These include economic forecasts and information about business continuity and personal preparedness. The site also includes consumer resources and materials for NAHB’s state and local partner associations. NAHB has also conducted a series of webinars to inform members of the association’s resources, policy advocacy efforts, and the industry outlook from NAHB’s Chief Economist, Robert Dietz. In terms of industry advocacy, NAHB participated in a call with White House officials to discuss strategies for aid to the housing sector amid the COVID-19 threat that is wreaking short-term havoc on the national economy. Less than 48 hours later, President Trump put our recommendation to provide mortgage relief to home owners into effect when he announced that HUD is suspend- ing foreclosures and evictions for mort- gages insured by the Federal Housing Administration through the end of April. Fannie Mae and Freddie Mac will follow suit and suspend all foreclosures and evictions for at least 60 days for home- owners with mortgages backed by the two government-sponsored enterprises. Congress on March 18 passed an emer- gency response coronavirus bill that Continued on next page
COVID-19 and the Housing Industry Continued
includes tax credits to help businesses and self-employed individuals cover some of the costs of mandatory sick leave included in the legislation. Congress is working toward a $1.8 trillion economic stimulus bill to fight the coronavirus that includes checks of up to $1,200 for taxpayers and $500 billion earmarked for loans to small businesses with fewer than 500 employees. These loans would be made available through lenders certified by the Small Business Administration. NAHB is forecasting that second quarter GDP growth will be markedly negative, likely the worst performance since the third quarter of 2008. Approximately 40% of the economy is on a full or partial pause due to the coronavirus. Assuming that containment efforts are successful within an eight-week period (consistent with South Korea's experience, where data are reliable), we forecast a weak third quarter followed by a rebound at the end of 2020. While this 2020 downturn will be sharp, it may also be short. The economy was in solid shape at the start of 2020, which was particularly true for housing. The short-term outlook is negative for the economy as a whole, but policy help is underway. The Federal Reserve reduced the federal funds rate to effectively zero, restarted quantitative easing (including for mortgage-backed securities, in response to recent liquidity concerns in the mortgage market), and made other policy moves to help ensure the continued operation of the financial system. If Congress and President Trump can agree on a $1.8 trillion stimulus package, that will help the economy bridge the gap from now through August. This is uncharted territory, and NAHB will continue to survey the industry, analyze the data and advocate on behalf of our members. NAHB has gone into overdrive to help members understand and respond to the fast-changing economic environment. History suggests a robust rebound will follow this significant but temporary shock to the economy.
Capitol Update In the final hour, at 11:39 p.m. on Friday the 13th, SB 1066 “Impact Fees” by Senator Gruters passed the Florida Senate (for the second time), becoming the last bill of the 2020 Legislative Session to be engrossed, enrolled, and sent to the Governor. The bill protects pending permit applications from unnecessary impact fee increases and provides increased flexibility for impact fee credits. In a 100 words or less; the 2020 Legislative Session saw victories that included: • “Rights of Nature” State preemption; • No sweep of Sadowski Trust Fund monies; full funding • Requires local governments who implement “linkage fees” on residential housing to fully offset costs to developers; • Prevents local governments from excessive audits on private building inspectors; • Increases affordable housing flexibility for any parcel zoned for residential, commercial, and industrial use; • Mandates impact fee reporting in each local governments' annual audit to the Department of Financial Services; • Mandates building code courses for out of state contractors; and • Ensures the type two transfer of the Onsite Sewage Program to the Department of Environmental Protection maintains its current integrity. Further, the FHBA team defeated amendments that sought to use excess permit fees for affordable housing, impact fees for affordable housing, and the requirement for special jury verdict forms in construction defect litigation. Legislators will return later this week to finalize the budget. Please stay tuned for a complete legislative analysis following our 2020 Legislative Session!