Homebuying season usually coincides with the arrival of spring. But this year, the spread of COVID-19, which was declared a pandemic by the World Health Authority (WHO) on March 11, 2020, has put a halt on the (coronavirus) real estate market.
The Real Estate Industry Comes to a Halt
Uncertainty in the economy is causing worry about the impact of coronavirus on real estate and the sector’s hardest hit is tourist-driven, such as hotels and retail, but housing is still taking a tumble.
Why is Coronavirus Impacting the Real Estate Industry?
The crisis has forced most people to practice social distancing guidelines to help stop the spread of the coronavirus, and millions of people have lost their jobs. There are millions more Americans at risk of being laid off, and the economy is in turmoil.
Building and development supply companies have interrupted production as employees stay at home, or firms have had to shut down. Further layoffs will impact this sector, and general contractions in consumer spending have reduced economic activity, possibly driving the economy into recession.
Social distancing endeavors are striking hotels, sports venues, and restaurants and bars hard as they must close for however long authorities tell them, and so far, for weeks on end.
What are the Impacts?
Zillow reported that the housing market fell sharply in the first week of April, compared to last year, and new listings reduced by over 27%. Usually, the number of new listings rises to around 50% during the period from March 1 to April 1. Still, this year has seen a drop of 19% because of the worsening pandemic.
Online home tours are up 408% since February as buyers and sellers adjust to the social distancing constraints. However, some experts put this sharp increase down to boredom and increased numbers of people at home looking for release.
Generally, the effects on real estate will differ by market and sector, and the scope of the impacts will depend upon the length of the economic shutdown.
Also, the coronavirus real estate disruption varies from state to state. For example, Florida is exposed to large numbers of hotels, theme parks, cruise ships, restaurants, and bars, as well as senior housing.
Homebuyers are staying home in droves. Open houses have been canceled across the country, and buyer interest has stemmed because of health concerns.
The process of buying and selling is a lot longer and more complicated because of stay at home orders. Many real estate businesses and connected firms like home appraisers are non-essential and, therefore, on shutdown. Some buyers are renegotiating purchase prices 20-30% lower than previously agreed prices.
Retirees, or those close to retirement, who was hoping to buy a home in a retirement village or active community, may have to alter their plans if they were depending on releasing funds from investment plans.
There is also mounting unease about stricter lending conditions for non-conforming mortgage loans. Self-employed people or buyers with larger debt to income ratios over 43% are having issues obtaining mortgages.
However, the Federal Reserve has applied two emergency interest rate cuts, which will push mortgage interest rates to reduce.
Homebuilders are impacted because of the lack of materials being exported from China, which typically supplies 30% of the total materials.
Builders will have to stop buying land in the short term, at least, and spending on development spending will be slowed.
Tenants and Landlords
The rental market is facing turmoil as tenants who have lost income will be unable to pay their rent. Although measures are in place to support and give leniency to tenants, landlords will feel the knock-on effects. As landlords aim to retain their occupants, they will no doubt be asking for forbearance as well.
One big question on everyone’s lips is whether the pandemic will cause the housing market to collapse like it did in the 2008 financial crisis.
This is a crisis like no other, and the longer-term effects are less apparent and less predictable, but the housing market is very durable.
After the virus runs its course, the commercial and retail sector may get back to normal, and the impact on future retail and leisure-related development will be insignificant in the long run.
Homeowners have seen a 13 year gain, but that bubble might be about to burst. At the least, it’s likely to be a buyers’ market, if it is not already, once the pandemic has run its course.
Are you a homeowner, tenant, landlord or commercial real estate owner? What impacts have you felt because of the pandemic? Please comment below.