2020 has proved to be a tumultuous year so far. As the coronavirus pandemic rages on, many of us are left with increasing uncertainty regarding our livelihoods and how things will look once this is all over.
The virus has affected nearly every facet of society and the economy, from retail to financial markets, and of course, the real estate market, both residential and commercial. So how exactly is the real estate market coping with COVID-19?
A Decline in Showings
Until mid-March–right around the time when the WHO had declared a global pandemic and President Trump declared a national emergency–real estate showings were up over last year, as one might expect. From that point on, however, showings began dropping rapidly in response to the ongoing coronavirus timeline.
By the end of March, most states in the US had enacted shelter-in-place orders and much of the country’s economy was already shut down. Real estate showings were now down more than 80% on average compared to first-week 2019 numbers as the economy was essentially halted.
After taking a freefall in the last two weeks of March, showings stagnated until mid-April, when they started to pick back up due to an increase in virtual showings. While some in-person showings have resumed with social distancing protocols in place, overall showings are still down significantly.
Housing Market Impact
Spring is usually prime time for the housing market, but not so much this year. Home sales in March were down 8.5% from February. These numbers, however, reflect contracts that were signed in January and February, before the coronavirus crisis had even begun in America. Experts predict the real damage is yet to be seen, and that sales could decline 30% to 40% in the coming months.
While home sales are expected to fall drastically, there isn’t necessarily cause for concern for the market long-term. Recent pandemics provide a wealth of data regarding their effects on housing, and studies show that while sales drop drastically for a time, prices themselves don’t fluctuate much.
The relative stability of prices in the face of drastic declines in volume suggest that most buyers and sellers are simply holding off on transactions until the pandemic ends. This supports the notion that the housing market will not significantly be jeopardized by the pandemic, but rather is just on pause for now.
Additionally, foreclosures and evictions for enterprise-backed mortgages have been temporarily suspended by the Federal government, further protecting the market and preventing mass foreclosing and a subsequent housing collapse akin to the events of 2008.
To some extent, the effect of the coronavirus pandemic on housing depends on locale. Some areas, such as the Northeast, are more vulnerable than others, while others aren’t feeling much of an effect at all–yet. Only time will tell the true impact, as the latest numbers are yet to be revealed.
Impact on Mortgage Rates
After the stock market suffered historic dips due to the coronavirus, the Federal Reserve began cutting interest rates, first by half a percentage point on March 3, then an additional full point on March 15. As a result, Treasury bond yields are at near-zero percent, causing mortgage rates to fall as well. The Fed also announced that it would purchase $700 billion in Treasury and mortgage-backed securities to keep lenders financed.
Mortgage rates were already low before the virus hit, and from mid-March to mid-April, fixed mortgage rates fell less than half a percentage point. While historically low rates are not likely to entice buyers all that much in the midst of a pandemic, the hope is that they will attract more buyers once it has passed, bouncing the market back up.
Although historical data suggests that economies tend to spring back relatively quickly after a pandemic, there remains significant uncertainty regarding the future of housing. Economists are already predicting a recession as a result of the coronavirus, which could have negative effects on the real estate market.
With inventories and mortgage rates both at historic lows, the coronavirus remains by far the biggest impediment to an otherwise highly competitive market. As we continue to wait out the crisis, buyers, investors, and local realtors alike will just have to hope for the best.
The good news is that recessions typically don’t affect home prices–and therefore, the market–all that much. In fact, in three out of the five recessions since 1980, home prices actually went up. Everyone needs a home, and as a fundamental need, there will always be a market for one–even if a global pandemic puts it on pause for a while.