Milan, August 2020 – The latest data concerning US GDP are raising much attention and interest among international investors. But, very often, they are not properly contextualized and compared to what is going on in other parts of the world. To paraphrase a famous Chinese proverb, one might risk to stare at the “finger” without noticing the “Moon” of an exceptional global situation, as other economies are faring much worse than their US counterpart.

Let us explore what the most recent information about US economic performance is really telling us, thanks to the in-depth analysis drafted by the dedicate Observatory of OPISAS – an international group specialized in residential portfolios focused on affordable and already rented property situated exclusively in the USA which, since 2008, transacted over 3,800 properties.  Spoiler alert: US residential market is exceeding expectations.

Recently, much attention has been devoted to the figure of the annualized projection of Q2 2020 for US GDP (Gross Domestic Product), which turns out to be -32,9% lower than the previous year’s one.

It goes without saying that, for those who are not familiar with financial jargon, this indication may result unclear and hard to contextualize, thus generating perplexity.

The “-32,9%” of which everybody is talking about right now is the annualized projection of the values registered in Q2 2020, therefore it represents, first and foremost, a depiction of the past US economic performance, not of the current one, namely between 5 and 2 months ago.

To put it in other terms: if US GDP would follow the trend it held in Q2 2020 for 12 months, then the resulting GDP would be 32,9% lower than the GDP of 2019, which corresponds, instead, to a 9.5% decrease if compared to the same period of the previous year.

To be clear, the quarter under consideration corresponds to April, May and June, during which the harshest and most generalized lockdown measures took place in order to contrast the COVID-19 pandemic. Such measures, like other parts of the World, brought to the forced halt of entire industries with an immediate effect on consumption and GDP.

Indeed, US data caused quite a stir, so much so that many did not notice what had been going on in other countries and, therefore, have not compared the various situations and drawn conclusions.

The Coronavirus pandemic dealt a harsh blow to the German economy, and German GDP decreased

by -10.1% during Q2 2020, according to the latest data released.

The estimates of the European Commission are worsening for Italy as well: Italian GDP in 2020 will shrink by -11.2%.

The GDPs of Spain and France will not fare much better: respectively -10.9% and -10.6%.

If we move to Latin America, instead, we found out that Argentina failed paying some $ 500 M of interests on its bond debt.

Moving back to the USA, thanks to their dynamic economy, historical data at hand, the effect has been as sudden as it should be expected, and it has partly already happened, and so will do the recovery.

The overall stability of the US system and the basis for its recovery are already visible from a series of data, including the ones released by BEA (Bureau of Economic Analysis, a federal agency part of the US Department of Commerce which elaborates macroeconomic and industry statistics):

• Disposable personal income had increased by $ 1.530 Billion - or +42.1% - in Q2 2020, surpassing the $ 157,8 Billion, (3.9%) increase seen in Q1 2020.

It seems self-evident that federal aid contributed reaching the goal of maintaining (if not even increasing) American consumers’ “firepower”, enabling them to regularly pay rent fees and fuel, with the resumption of consumptions, the economy rebound already expected in Q3 and Q4 2020.

While on the subject of consumptions, another aspect worth focusing on is the composition of the notorious annualized 32.9% GDP value. In fact, as reported by the MBA (Mortgage Bankers Association, the US national association which represents the real estate credit system), the undisputed main element which concurred in generating that value had been determined by a drop in consumptions during the strictest period of lockdown measures, and it is worth -25.1%.

Similarly, it is very interesting to observe how investments in residential real estate are among the less struck components, with “just” an annualized 1.8%. This negative figure is quite intuitively attributable to the impossibility for both clients and agents to visit and show housing, with the lockdown measures ongoing.

On top of that, from Q3 2020 and during all 2021, projections on both US GDP and the sector of “residential investments” are all positive, highlighting an actual rebound in line with what we had already anticipated beforehand, with significant reference to positive forecasts for US real estate.

In fact, the combined effect of the block in real estate transactions, interest rates at their historical minimum and behavioral changes of the American populace as an indirect reaction to teleworking, are raising sales, especially of existing residential real estate, by +21% in June.

The strong increase in demand is clashing with the endemic issue of the lack of supply in US housing inventory. On the contrary, the pool of houses for sale has further reduced also because of lockdown, with -18.2% year on year.

A tendency that sees the increase in demand hitting on the lack of supply cannot help but affect prices, which already in May marked a +4.9% on a national level.

Concerning the rental market, as we have seen, the shower of federal aid – by the way, expected to be renewed soon – kept stable both yields and rental fees actual payments. In fact, in June, 95.9% of tenants paid their fees regularly.

In this very special historical moment, therefore, at least for what concerns real estate investments in the US residential real estate market with rental yield, waiting for a return to normality or a rupture can be a more dangerous game than entering in the field and catch the current investment opportunities.