How COVID-19 Will Impact the Real Estate Market
The home buying and rental season usually corresponds with spring and summer. However, we are seeing a drastic change this year thanks to the COVID-19 pandemic. Now that we are almost at the finish line of strict stay at home orders which has severely hit the economy, we can truly measure the impact COVID-19 has had on the real estate market.
Low Mortgage Rates
The Federal Reserve has implemented emergency interest rate cuts since the beginning of the outbreak, adding to an existing low number for mortgage rates. Currently we are seeing rates at 3.0 - 3.4%, and that range has held steady so far. Even though rates are low, a lot of lenders are making it more difficult to attain mortgage credit. According to Curbed, the mortgage box has shrunk and lenders like Chase require borrowers to have a 700 credit score and 20% down payment to get a mortgage. This is not the case for all lenders, but most lenders are not easily accepting refinancing applications due to too many people trying to refinance their homes.
Demand High, Supply Low
The housing market was already feeling a tight squeeze this year and the pandemic has only made things more difficult. The west coast was already seeing a dip in homes for sale by the end of 2019 with a percentage of -18.5 for the LA area. The combination of a low number of houses for sale and high demand numbers has driven sale prices even higher. Buyers look for homes when major life events happen – marriage, a growing family, etc. – these life events are still happening, but, the uncertainty of the times has made supply lower. Sellers also removed their houses from the MLS due to the virus which resulted in low inventory.
Home-building Supply is Low
About one third of building material for homes comes from China, as well as completed products like appliances. With the supply lines disrupted home construction has been delayed. This comes at a time when home construction usually sees an increase in building and construction. It's safe to say that I have hope for the second half of 2020 as home development and construction projects may return from a long waited hiatus.
A Shift to Virtual
As stated above, significant life changes don’t stop, even during a pandemic. That means buyers are still looking to purchase new homes. Real estate professionals are getting creative when it comes to giving their clients the best service possible. Social distancing protocols has made it challenging to meet in person or tour a home that is for sale. To help combat this challenge, realtors are offering virtual tours and by appointment services. Call me if you would like to set up a virtual tour, (818) 237-8403.
What To Do Now?
At the time of this analysis, 41 states had announced state-wide stay-at-home orders, applying social distancing measures and limiting movement to essential activities only. The other remaining states had rationalized measures in place as well. The economy has reacted swiftly too, with most indicators pointing to a likely recession. The near-term impact to real estate activity (next 3 to 6 months) comes as open houses on new and existing homes are being halted, shifted to virtual channels, or drastically reduced and has adapted to an appointment-basis only. The mid-term impact (next 6 to 18 months) comes from lower buyer and seller sentiment, sustained disruptions to new and existing supply and sales funnel, and further declines in affordability from job and income loss affecting consumers.
SAVE, SAVE, SAVE. Personally, I have saved a lot of money, with the occasional Amazon Prime splurge of course. During this pandemic, some of us have had the opportunity to work and continue to make money while not spending it on fancy dinners. For those who were Furloughed, I pray that your jobs rehire you all and things go back to normal. Nevertheless, this downtime has been uncomfortable to all, but change is uncomfortable and only the strong survive!!! Adapt, change, save, and create a game plan for when the market becomes hot again.
Stay safe, stay healthy, and God bless!