Pollack: Congressional ‘failure’ left people struggling

Despite recession, there are many long-term positives

Posted 8/21/20

Moving into the coming months of the pandemic the economy appears to be murky but pushing through, the long term stands to be very positive, experts say.

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Pollack: Congressional ‘failure’ left people struggling

Despite recession, there are many long-term positives

Posted

Moving into the coming months of the pandemic the economy appears to be murky but pushing through, the long-term stands to be very positive, experts say.

All this will have an effect on the housing industry, which has remained resilient as other industries have faltered with the onset of the recession, according to experts who recently spoke on a panel moderated by Jordan Rose, President of Rose Law Group.

Economist Elliott Pollack said a huge setback has been the failure of Congress to move forward with another Cares Act to help people stay on their feet during the downturn.

He said the economy is truly bifurcated — those who have been able to stay employed are seeing money pile up because they can’t go out to dinner or to ballgames or go on vacation because of social distancing.

On the other hand, he said, those who were laid off in jobs like retail, restaurants and entertainment are now even farther from their goals with increased financial stress.

There are a lot of positives looking forward, but Congress’ inability to act has been a huge setback for the housing industry and across the board, he said.

“The biggest negative is that we probably have the sleaziest Congress I’ve seen in my life that they would go home without a follow-up to the Cares Act, leaving millions of people without a source of income,” Mr. Pollack said.

“This is not a typical recession. This is not caused by typical economic factors and people are not losing their jobs because of the normal economic cycle. This is a government induced recession because of the government’s reaction to COVID. The economy was strong going into this and essentially the Cares Act did what it had to do. Some people fell through the cracks, but it got money to a lot of people who otherwise would have been in dire financial straights. They’ve left all these people hanging and now they have an obligation to help these people. Essentially if they want any semblance of an economy coming out of this, it’s something they have to do.”

Across Maricopa County, more than 7,000 people experienced homelessness on the night of Jan. 27, continuing a troubling upward trend, according to the Maricopa Association of Governments.

And thousands could take to the streets once an executive order blocking people affected by COVID-19 from being evicted could expire in October.

Economist Ali Wolf refers to this group as the “mushy” middle and said they are the most in need of another Cares Act relief bill.

“When you take that money away from people who need it to just live, to just buy groceries, that becomes a problem,” she said.

“Anyone who has money, who has a house, they continue to see home equity go up. They continue to see their stock portfolio go up. They are fine. They are saying, ‘What recession? What kind of downturn.’ And there is no problem. But if you look at the other side of it, where people’s wages are getting cut, their hours are getting cut.”

That said, the Valley is better off than other cities in terms of unemployment.

The national unemployment rate is 10.2%, and in other markets it is around 15%. However, the unemployment rate in Phoenix is just under 9%, Ms. Wolf said.

Similarly, while many industries are hurting, the housing market is thriving, with some home builders reporting a 70% year-over-year increase in sales, according to Ms. Wolf.

In the Phoenix metro area from June to July, there were 28% more new home sales, according to a report from Belfiore Real Estate Consulting. Normally, 2% fewer sales would occur during this time.

“We are not seeing the job losses fully concentrated in the income range where people who would buy homes are, and that’s why we are continuing to see so much strength in housing even during August, a time when the market is usually slower,” Ms. Wolf said.

The housing market will have to deal with a sharp increase in lumber costs looking ahead because of shortages caused the pandemic and tariffs.

Brad Schoenberg, division president of Taylor Morrison, said every builder today is very concerned because the commodity is so integral to home building

“As cost increases, sales price increases to maintain a profitable business. So builders are strategizing about how to deal with it while being mindful of what consumers can afford,” he said.

“It is definitely the headwind that faces us all if interest rates were to pick up and the costs of commodities continue to climb,” Mr. Schoenberg said. “I’m hopeful this is a seasonality issue. Typically for lumber we see seasonality changes as the winter-time rolls in and less production happens on the east coast and in some Midwest states. Here in the west we are lucky enough to be able to build year-round.”

Despite the economic downturn, Mr. Pollack said there are a lot of positives for the long term.

He said the recession has been uneven with the first round of layoffs affecting people who are not those in the housing market, but there will be ripple effect for those in the housing market.

There are record low interest rates. Inventory is incredibly low. People are relocating to the Valley.

“The combination of all those things makes me very optimistic for the long term,” he said.

Philip Haldiman can be reached at 623-876-3697, phaldiman@newszap.com, or on Twitter @philiphaldiman.

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