COVID-19 not a ‘normal recession,’ says county assessor
Santa Clara County Assessor Larry Stone told members of the Silicon Valley Association of Realtors last week that the recession brought about by the coronavirus pandemic is like no other the country has experienced.
“The COVID-19 pandemic blindsided everybody,” remarked Stone. “It’s not a normal recession.”
Stone explained the 2008 recession was mainly a residential recession caused by subprime mortgage credit fraud and excessive risk taking by financial institutions. The U.S. economy did not fully recover from the Great Recession until 2015. The dot-com recession before that was mainly caused by office and industrial construction built on speculation.
The pandemic recession is a health issue unrelated to the financial system. Virtually overnight 22 million workers lost their jobs or were laid off from profitable, sustainable businesses that were ordered to close.
Stone said economic analysts were hoping for a U-shaped recovery and gradual return to a vibrant economy. Then forecasts changed to a W-shaped recession, depicting a second and third surge of the pandemic. Now there is another letter to it - a K-shaped recession, where the upper path of the K is led by Wall Street and major banking and real estate interests and the lower path of the K is the real economy, comprised of small and frontline service-based businesses, essentially bifurcating the economy and exacerbating inequality.
“It’s concerning to me,” said Stone.
According to Stone, San Jose’s unemployment rate dropped from 14 percent in the second quarter to 7.2 percent in November, compared to just 2.3 percent at the beginning of 2020. The Bay Area has recovered 44.5 percent of the jobs lost in the first quarter of 2020 when the coronavirus paralyzed the country. San Jose has recovered only 37 percent of jobs lost.
Stone said real estate, on the other hand, has done very well and rebounded despite the pandemic because of very low interest rates. There is talk rates could drop to near zero through 2023.
The population hit hard by the Covid recession is not homeowners, but it is renters, said Stone. He indicated rents have dropped 15 percent in Silicon Valley, but only 7 percent in San Jose. He sees higher-end rentals incurring the biggest rent loss.
Asked if he foresees revenue dropping as building scales back,
Stone said unlike the dot-com recession, big stable corporations like Apple, Google, and Adobe really plan to occupy these buildings and are not merely speculating. He acknowledged remote working is causing tenants to lease less space, which overall will have an impact in terms of office space.
Stone said malls are leading “the retail mess” - 12,000 closed last year, up from 7,000 in 2019. It is predicted that 30 percent will close in the next four years. Online shopping, on the other hand, has increased exponentially, especially during the pandemic, with Amazon coming out as a big winner.
In all, Stone is optimistic about 2021. He believes Silicon Valley can get back on track to its thriving economy during pre-pandemic times once the virus is under control or eliminated. He believes
long-term, the economy should improve with a Biden presidency and Silicon Valley will benefit from a more welcoming immigration policy, a more collaborative approach to foreign trade, and improved U.S. stature in the world.
“Businesses impacted by the pandemic will recover when enough of our population will be vaccinated, when people feel comfortable going to restaurants, ball games and other public events,” said Stone. “We have been dealing first with a health crisis; not an economic crisis. Until we resolve the health crisis, we can never expect to resolve the economic crisis.”