Coronavirus Impact On Real Estate
As Americans watch the spread of the virus throughout Asia and Europe, there is much uncertainty here. That is evidenced by the dips in the stock market no one saw coming. Although most of the attention has been focused on the effect on various markets, how do you make confident decisions in regard to your real estate plans?
“At the very least, the coronavirus could cause some people to put home sales on hold.” National Association of Realtors (NAR)
That’s could be a serious consideration for homeowners thinking of listing their homes while they still occupy it. The thought of strangers walking through the home and touching surfaces could put some folks off.
It’s also important to balance that with how it could end up costing you in the long run. The homeowners, waiting it out could cost you a sale sooner rather than later. As for home buyers, now could be the very best time to find that great house you didn’t find last year since competition could be a little lower. Also, as rates drop even lower, now is the optimal time to purchase and lock in your rock bottom rate.
When there’s fear in the world, we see mortgage rates drop and investors flee stocks for the safety of U.S. bonds. Similarly, the drop in interest rates may help hold off any significantly big effects on the market at least for the time being.
“The Fed’s action was expected but perhaps not to this degree and timing. And the policy change was consistent with recent declines for interest rates in the bond market. These declines should push mortgage interest rates closer to a low 3% average for the 30-year fixed rate mortgage.” National Association of Home Builders (NAHB)
Although some new homeowners may decide to hold off listing their house, homebuyers are still out in full force to take full advantage of the super-low interest rates.
How Will The Coronavirus Affect The Market?
Although there are a few ways the virus could affect the real estate market, you can rest easy because a housing catastrophe on par with the 2006 financial crisis is not going to happen. Consider the record-high number of new home buyers entering the market, a humming economy and a 3-4% interest rate and you have all the earmarks of another highly competitive home-buying season.
The biggest factor in housing is bonds, as those prices will also affect mortgage rates. When the stock market is perceived as being too risky, investors generally sell their stocks and purchase bonds. The higher the demand for bonds, the higher the price. The higher the price of bonds, the lower the interest rate – called a yield – is relative to the bond price. So, when bond yields are low, so are mortgage rates.
Recently, we witnessed the stock market drop 9 points on the Dow. Rates are now dropping to around 3.7%. The good news is that the housing market isn’t adversely affected by the stock market, mainly because people don’t buy homes purely as an investment. Having a roof over your head is a basic need. One’s choice to purchase real estate is usually due to a change in life circumstances such as marriage, growing family, job promotion or job transfer.
Here in Michigan, we experiencing a leveling off of housing prices due in large measure to new home construction. The number of new homes coming on the market is having an impact and making up the shortfall experienced years prior. We are moving from a seller’s market to a balanced market. Last year, where nearly all states were experiencing negative inventory, Detroit Michigan was the only one with a positive 6.4% increase in inventory and sales.
New Construction Is Playing A Big Role
According to the NAHB, home builder confidence has now skyrocketed in recent months. New home sales have grown rapidly along with new construction. We are starting to see more new construction directed at new home buyer prices of $200K – $250K an up.
However, because nearly a third of home building material imports come from China, the slow supply chain may dampen this industry just as it’s heating up. If supply lines are disrupted, it could slow down the pace of new home construction.
“Low interest rates help support demand, and consumer confidence readings in the coming months will be key, but the virus does heighten some of the longer-term challenges on the supply side in terms of housing supply,” says Robert Dietz, an economist with NAHB.
Vacation & Short-Term Rentals Feeling It
By far, the most notable impact stemming from the Coronavirus scare is being felt in the vacation and short-term rental market. As fear spreads, schools close and businesses scale down their events, many investors are reporting last-minute cancellations and their units sitting empty through March and into April. Big amusement parks, recreation, and entertainment events are closing down which is having a very negative impact on vacationers just as we enter what is normally the Spring peak season.
Spring 2020 Buying Season
Key indicators such as record-high employment, wage growth, and record low mortgage rates all signal high demand.
Just how the coronavirus will affect the housing market is still a relative unknown as we work through it. If it goes on much longer than anticipated, it could have a mild effect on demand. At best, the rate in which home is appreciating may slow down a bit but I wouldn’t look for any significant drops in housing prices any time soon.
However, an ever-increasing number of homeowners are waiting it out which increases the likelihood of a big housing boom this Fall. Experts are painting a pretty bright future for the housing market when it bounces back…and it will!
Your Two Cents
How has the Coronavirus scare affected your plans? Share your concerns and questions here.