The coronavirus outbreak is causing a sudden slowdown for several sectors. Real estate professionals are finding themselves in uncharted territory as they take additional health and safety measures to organize open houses and navigate a market with an uncertain future.
Here is what you need to know about how the coronavirus is affecting the residential real estate market, and what kind of long-term effects we can expect to see for the real estate sector.
Buyer interest is decreasing
ShowingTime recently released numbers for showings scheduled for the top markets across the country. The data shows a significant decrease in buyer interest as the coronavirus outbreak worsens.
For realtors 2020 had been a good year so far with a weekly average number of showings superior to 2019. The trend reversal that occurred on March 11 and March 12 preceded the National Emergency proclamation.
Weekly showings as of March 20 have been decreasing ever since, with a weekly average that is 5.2% lower compared to the beginning of 2020. In 2019 the weekly average number of showings was up by almost 32% over that same time period, reflecting the typical springtime activity on the residential real estate market.
Individuals are avoiding public spaces and physical contact in an effort to slow down the spread of the disease. As of March 12, 7% of realtors had stopped organizing open houses for that reason.
Social distancing doesn’t mean open houses have to stop. Hand sanitizers are a solution that 92% of real estate professionals have adopted, while 88% use travel restrictions to stay safe. Virtual meetings are an alternative that 76% of real estate professionals had adopted as of March 10, and it’s possible that virtual open houses will become a go-to solution as more professionals invest in that technology.
Uncertainty and lay-offs
Realtors report deals falling apart at the last minute as buyers see their financial situation change overnight due to lay-offs or simply feel uncertain about their future and decide against making a major financial commitment.
Experts believe that the springtime boost that is typical of real estate isn’t going to happen this year. Current projections are looking at 4.6 million individuals losing their jobs, and a survey conducted on March 14 revealed that 18% of Americans know someone who has lost their job or had their hours cut back due to the outbreak. It’s a trend that’s here to stay since shut-offs are affecting almost every industry, and it will take a while before potential buyers feel confident about making a major commitment like buying a home.
The silver lining
The current real estate slowdown will last for a while, but the market could bounce back sooner than expected.
People are pulling their homes from the market due to uncertainty or because they see their financial situation changing rapidly.
For those who decide to keep their homes on the market, the low inventory means they are more likely to find a buyer fast and more likely to get their asking price.
Low interest rates
The Fed dropped the interest rates to 0% to stimulate the economy. The last time this happened, rates remained low for seven years from 2008 to 2015.
People aren’t buying homes due to uncertainty, but we could see a boom in mortgage applications a year from now. The millennial generation has been struggling to purchase homes because of their high levels of debt. Student loans are currently causing 61% of millennials to delay homeownership, and the combined effect of lower interests on their student loan balance and affordable mortgages could boost homeownership among that demographic.
Coronavirus relief bill
The Senate is about to pass a relief bill that would help families and businesses withstand the economic slowdown.
Some households might decide to hang on to the money and use it to finance a major purchase, like putting a down payment on a house.
It’s difficult to predict how households will spend that money, but it could be a factor that makes homeownership more accessible, especially when combined with low interest rates.
March 9 saw the Dow Jones drop to levels unseen since 1987 with a loss of 508 points. We could see investors shy away from stocks for a while and prefer tangible assets like real estate.
This trend could result in a market with a strong demand and with more capital available since it won’t be invested in stocks. A strong demand would motivate owners to put their houses on the market.
Need for more data
It’s difficult to compare the current situation to 2008 since the previous recession was directly linked to a real estate bubble, which isn’t the case now. Activity on the residential real estate market is coming to a halt due to the current uncertainty, but new trends might emerge during the next few months.
The only certainty is that things are drastically changing for the real estate market. HJR Global is here to help you review your financial situation, adjust your current business strategy, and look at how residential real estate assets could fit in your business financial planning strategy.