Blog Post

Housing Market Impacts from COVID-19

You might have heard in the news or from a local Realtor, “Closing and listings are still happening, real estate hasn’t slowed down for me at all," and it made you wonder, should you still list your house for sale? Is now a good time to buy? What’s happening to home values?

Here’s the real truth: Buyers and sellers are nervous. Banks and mortgage lenders are nervous, too, and being more strict on their lending practices. When the real estate market gets nervous, everything slows down, a lot.

Here’s some data to back that up:

  • According to the NAR (National Association of Realtors) , 1 in 6 agents have stated that buyer interest has declined.
    • Investors slowing down
    • Personal home buyers slowing down
  • To add to that, the NAR has already suggested a 10% reduction in sales for 2020, and it could be significantly less the longer our economy is in lockdown.
  • You can already see the decline by the number of people looking to get a mortgage. The number of consumers seeking mortgages dropped significantly in the week ending March 20, according to a weekly survey from the Mortgage Bankers Association. Weekly purchase applications fell 14.2% compared with the previous week—and was down 11.2% from the prior year, according to the non seasonally adjusted numbers.
  • Lastly, a record 3.28 million Americans filed for unemployment support in the week ending March 21—the most claims ever filed in a single week. If people do not have jobs to pay their bills, they will not be in the market to buy a new house.

So what about home values?

Will we see a dip? It’s a really good assumption given the law of supply and demand that says (in simple form), as demand falls so does price. Because supply will likely decrease slightly, too, we will certainly see prices stabilize if not decline.

Will it be a repeat of the 2008 recession, though? Most experts will say no. NAR Chief Economist, Lawrence Yun, stated that, “During the last recession, real estate was on wobbly ground with loose lending and too much supply. Today there is no subprime lending and too little supply. The real estate market will hold on much better.”

One thing that’s unclear is the future of the mortgage market. After the initial mortgage rates dropped, we saw rates spike. Refinances came in at unprecedented rates, and in an attempt to reduce the number of loans coming into the system, lenders increased the delta between mortgage rates and the 10-year yield (this is why rates went up so quickly). Refinances cost mortgage lenders a lot in runoffs. They’re also facing margin calls from hedging interest rates as well as still being liable for mortgage payment even if borrowers do not pay. If the Fed allows the mortgage industry to crumble, it is unclear what could happen. Some experts state that, “it could trigger another devastating cycle of foreclosures and bond market crises as investments seen as safe fall apart under an unprecedented financial shock.” -- and that just sounds like a big ball of uncertainty.

What does this mean for sellers?

For sellers, expect things to be slower. If you’re selling a high-end luxury house, these usually take longer to sell anyways, so expect them to take even longer. Currently, people are worried about job stability and their ability to pay bills. This means that they're less likely to want to buy a home, especially if they're nearing retirement and the stock market wiped out a big chunk of their 401(k). It’s seemingly, for the time being, turned into a buyer’s market.

But, there’s a flipside to that if you’re selling and planning to buy another home. Although you might not get the price you were hoping for before COVID-19 , you’ll probably be able to get your next home at a better price. So, it kind of evens out.

Action item: Ultimately, if you need to list your house for sale now, have the right expectations on a list price. Also, do small things to go above and beyond other listed homes in your market, such as small improvements to improve the percevived quality and value of your home (painting, minor updates, landspacing, etc). Most agents are not doing open houses or in-person showings -- so make sure you work with an agent that can make your home look as appealing as possible digitally, and has the ability to do most of the transaction remotely.

What does this mean for buyers?

Buyers should expect less inventory as sellers will likely hold off on listing unless they’re motivated. Buyers should also expect slower turnaround time from mortgage lenders, as well as stricter qualifications for a loan. The mortgage market will likely be volatile over the next 60 days as the Fed works to stabilize and stimulate the economy in the midst of COVD-19.

Action Items: It's not a bad time to buy a house. If you're looking to buy, do all the recommended things like getting preapproved, finding a realtor, etc (Zillow has a really good checklist here). Interest rates can save you a lot of money, so keep an eye on those as you shop for homes and lock into on a mortgage.

Final Thoughts

With all that being said, this is unchartered territory for everyone, and so much of this could change tomorrow or in the coming weeks depending on how the COVID-19 pandemic plays out.

On the bright side, experts are very optimistic that once we get on the other side of the COVID-19 pandemic, the real estate market could rebound fast. And by fast, that means 1-2 quarters (or 3-6 months). This is all dependent on how fast businesses reopen and start making money, hiring back employees that have been laid off, and the sentiment of consumers to start spending again.

Truly, only time will tell. In the meantime, if you have any questions or would like our expert advice on buying or selling your next home, please reach out to us here. We’re ready to help whenever you need us!