Whether it’s to provide four walls within which we can safely keep our distance from others or to provide an investment to help our wealth grow, our appreciation for real estate has had a lot of reason to grow these last couple of weeks.
But in these unprecedented times, clients are asking me what impact the coronavirus is having on the real estate market. I’d like to provide a few insights.
HOW’S THE CORONAVIRUS AFFECTING THE HOUSING MARKET?
Going into this current crisis, the housing market was very solid. That makes this situation different from the recession we all remember from 2007-2012. That one was induced by all-too-easy subprime mortgage loans and builders glutting the market with an oversupply of new homes. Neither of those conditions exists currently. Banks are strong and the fundamentals of housing supply and demand are strong too. As Dr. Lawrence Yun, the Chief Economist with the National Association of Realtors explained in a recent interview, “Housing is on very solid ground, yet we are running into this economic quarantine…that is shutting down the economy temporarily.”
Just as with stocks, it helps to take the long view with respect to your real estate investments. As motivational speaker Brian Buffini explains, ““When you have a bit of a longer-term perspective, it seems to take you out of the short-term panic.”
Dr. Yun predicts that once the virus situation is under control, we will see a robust rebound in people searching for homes. There was already pent-up demand in the market, and now with many people’s lives hitting the pause button, it only makes sense that once all systems are “Go” again, the demand will be even greater.
WHAT ABOUT CURRENT SELLERS AND BUYERS?
In spite of the flux the economy is in, we are still seeing people active in the housing market. It ranges from buyers wanting to get out of a deal because of the uncertainty to multiple offers on a house of $1.175m that most likely won’t appraise for that.
As a Realtor navigating these waters for my clients, I am doing my best to steer them in the direction that addresses their needs while keeping them and the community-at-large safe.
My general advice is to assess your situation. If your job is secure like many are right now and you are looking to buy a house, I’d take advantage of the record low mortgage rates and the fact that there is probably less competition right now which gives you more negotiating power.
If you’re fearful that your job could be at stake, I’d hit the pause button on your house search and pick it back up once you have more job security.
Here are the measures I am taking to ensure the safety of my sellers:
If the home is vacant, I clean and sanitize the handles often, keeping the seller informed of my visits and interventions.
If the home is occupied, I offer to do a virtual tour first, using Facetime or videos to ensure we are dealing with serious buyers. I make sure all showings are scheduled through me and notify the buyers’ agent of the safety measures I am taking including removal of shoes and use of throwaway booties, enforcing the use of sanitizer or wipes upon entry, using latex gloves, sanitizing doorknobs and light switches often, and asking they do not leave business cards.
WHAT ABOUT MORTGAGE RATES?
While mortgage rates are hitting all-time low’s they are not as low as some consumers think they should be, especially when they hear that the Feds are cutting interest rates to zero. Why is that?
The Federal Funds rate is the bank borrowing rate—the rate used when banks borrow from each other on a very short-term basis, usually 24 hours to cover any shortfalls they may have. The mortgage rate does not typically move one-to-one with the Federal Funds rate. However, Dr. Yun predicts that given the very accommodating monetary policy, mortgage rates will continue to be historically low, and may even go down to 3.0%.
That being said, buyers looking to enter the housing market need to come at it with a realistic picture of the kind of interest rate they are capable of carrying. Make sure your lender is providing an accurate picture of that and not promising a rate he or she can’t deliver in order to gain your business.
WHAT IF HOME PRICES DROP?
I’m going to defer to Dr. Yun on this one. He points out that the housing market has been a bright spot in several of the last recessions. In the early 1980s when unemployment hit 12%, real estate home prices were rising. The same could be said when things took a downturn in the 1990s as well as in the aftermath of 9/11.
The memory of the housing market crash of 2007 sticks with many of us but as I said earlier, the conditions leading into this current crisis are completely different. The market entered it much stronger, just as the strong spring season was about to take off, so as soon as this “economic quarantine” that Dr. Yun refers to is lifted, we should see things rebound in a big way.
If there is any way I can help to put your mind at ease about the current crisis and how that affects your home and/or home buying or selling plans, please do not hesitate to give me a call at 503.939.9801.