BEWARE OF FALLING HOUSES

In the Wizard of Oz, Glenda warns the wicked witch of the west that she’d better watch out, “Before someone drops a house on you too.” I think many people are feeling this way today as we wait for the next disaster, wondering if it might land on us. Government actions have consequences. Dramatic actions such as quarantines and trillions in stimulus create collateral damages far beyond the scope of the original actions. I have already written about how the pricing of stocks on Wall Street needs to be taken with the proverbial grain of salt, since it is very difficult to assess real value in such a false economy. As an example, the hotel industry recently reported many of the major chains are “up to” about 20% occupancy. Obviously a hotel is not viable with 80% vacancy so investors are left to make estimates about if or when those rates will return to a profitable level. Many other areas of the economy are likewise filled with uncertainty.
 
While many have been focused on how current events might affect their investment accounts, some other side effects may have been slipping by unnoticed. As an example, I generally recommend people form a family trust as part of the financial planning process. In most cases, the cost of a trust is minimal compared to the legal process of going through probate. (Ask your lawyer to assess your needs.) But during this time of crisis a new issue has arisen. With the court system bogged down by virus restrictions, we are seeing examples of what was once a fairly straight forward probate process being dragged out for many months. Recently a friend was told their probate would take at least six months, which will be a significant financial burden to the family. This collateral effect of the quarantine makes me an even stronger proponent of having a trust.
 
The crisis has resulted in a squeeze on the supply side of our economy. Have you tried to buy a new automobile lately? With factories closed or operating at reduced capacity the supply is very small, and prices are going up accordingly. Such is the case with many commodities. A quick visit to your neighborhood grocery store will reveal that some items are in short supply, and many items have increased in price. Inflation may very well be the next big shoe to fall.
 
Financing is another affected area. With very low interest rates many have rushed to refinance their homes. The initial surge created so much pressure on the banks that several raised their rates significantly because they essentially wanted to stop the loan applications. Like other markets, the lending markets have become volatile and inconsistent, so anyone looking to borrow money should shop rates very carefully.
 
The virus was initially a medical issue. The response to it has created major economic and social issues with collateral damage likely to continue into the foreseeable future. I suggest being continually alert to changes you might not otherwise think of, less this crisis drop a house on you too.