Property owners know how red-hot the housing market was in this country in 2019 and even into the first few months of 2020. But then came the COVID-19 outbreak, causing disruption in the economy, closed businesses and soaring unemployment.
It is no surprise that the coronavirus called COVID-19 is impacting the housing market. Few sellers are listing homes, and fewer buyers are looking. But that might not spell long-term doom.
Impact of Coronavirus
Pandemics don’t usually give advance warnings that would allow communities to prepare for what is to come. When this coronavirus first showed up abroad at the end of 2019, little was known about the virus or how it would spread. Even the U.S. president was suggesting that it would not have a significant impact on the United States. But that has not been the case.
The statistics on how hard COVID-19 has hit the United States are widely available, with hundreds of thousands of individual cases and many thousands of deaths. The stock market has tumbled, and unemployment is rising precipitously.
What about the real estate and rental markets?
Coronavirus and the Real Estate Market
Even when stocks fall in a recession, the real estate market can remain strong. And March 2020 started out as a strong month for the housing market. But soon, the pandemic began to shadow home-selling activity. According to a new report from Realtor.com, the number of newly listed properties in the final two weeks of March were from 13.1% and 34% lower than the prior year, suggesting that sellers are postponing listing their properties.
There are some practical reasons this might be the case. In order to prevent the spread of the virus, experts around the country are urging people to leave home only for essential activities, and social distancing—keeping 6 feet away from others—has become standard. While some states have defined “essential activities” to include real estate purchases, most have not. That means that viewing and showing available real estate can become problematic, and, in some cities, all construction is halted.
Another sign that the housing market is faltering comes from an analysis of Google search data. Lending Tree ran the numbers on how often people searched the term “homes for sale” in the 50 largest urban centers of the country. It found that the numbers fell in every city. Lending Tree projects that the search drop could rise to 63 % during the pandemic, suggesting a serious decline in home sales.
Coronavirus and the Economy
The bigger economic decline caused by the COVID-10 outbreak is also unfavorable to real estate. The stock market has plunged day after day, a result of both the fear that the country is heading for a recession and the dropping oil prices.
The Federal Reserve has taken steps to protect the economy from COVID-19 concerns by cutting interest rates twice since the start of the pandemic. While this type of action usually prompts new sales, this did not happen. Instead, many people used the rate drop to refinance loans. In fact, mortgage applications for home purchase were 24% less for the last week in March than for the same week the prior year, according to the Mortgage Bankers Association, although applications increased slightly the following week. Refinance applications were up 168%.
And despite the lowered mortgage rates, potential home buyers face an uncertain job future. With businesses shuttered, unemployment claims have reached historic highs. This is not the climate in which the average homebuyer will feel confident to enter the homebuying market. And renters, losing jobs, find themselves unable to pay their monthly obligations. Some states have precluded landlords from evicting these tenants for three months.
Since the crisis has overtaken the country so rapidly, it is difficult to determine the extent and duration of the damage to the real estate market. However, many experts believe that, over the longer term, it will recover.
This view is supported by a study Zillow conducted on the effect of prior pandemics on the housing market. It found that despite the dramatic drop in house sales during an outbreak, the prices did not drop very much or, in many cases, at all. This suggests that previous pandemics have stalled the market, but not stopped it.
Homeownership is also aided by the moratorium on foreclosures ordered at the federal and state level. The federal government has directed mortgage servicers to work with borrowers rather than foreclosing on any mortgage backed by Freddie Mac, Fannie Mae or the Federal Housing Administration.
No one can deny the negative impact of the current pandemic on the housing market. However, at this time many experts predict that the real estate and rental market will likely recover.