Spring was always the buying season partly because after winter, homes don’t look their best. This year, however, is going to be much different.
As soon as the spread of the novel coronavirus around the globe was declared a pandemic on March 11 by the World Health Organization, things have been altered drastically. In the U.S. alone, the virus has claimed more than 44,000 lives of Americans. Stay-at-home orders were imposed and many workers were laid off from their jobs and about 26 million Americans were unemployed as unessential businesses were forced to close.
Looking back at the previous pandemics that the world has experienced—SARS, MERS, H1N1, and others—home sales did drop dramatically but prices stayed the same or only had a slight decrease. In other words, the previous pandemics had only put the housing activities on pause.
Now, with the recent pandemic happening again, the signs have shown things are going to the same path —home listings have dropped, and mortgage applications have also gone down.
Depending on local conditions—since the virus seems more prevalent in places with heavy concentration of population—the effects the health crisis on the housing market could vary.
Moreover, the Fed has imposed moratorium on foreclosures and ordered mortgage companies to provide consumers with discounted payments and forbearance on mortgages backed by Fannie Mae, Freddie Mac, and FHA.
These precautionary measures are paramount to prevent massive foreclosures and a housing crash such as that in 2008. However, its downside could be the bankruptcy of mortgage servicers. For now, the amount of damage it may bring to the mortgage industry and in the process, to the housing market is still inconclusive.
Coronavirus has caused mortgage rates to drop even further.
The Federal Reserve has already cut the interest rates twice this year bringing the return on investments to almost 0%. Also, the stock market crash has impacted the interest rates as well.
Investors are pulling out their money from the vulnerable stock market and putting it on bonds. This increases the demand and in turn causes the bond prices to go high. The higher the price of bonds, the lower the yield. With lower bond yields, the lower the mortgage rates are too.
However, this stocks and bonds relationship may not be as evident as it was previously because the rates right now are already so low at 3.8%. The question is, how low will mortgage lenders be willing to go if the Fed cuts rate again?
What is the housing market’s current standing?
Right now, the market is suffering from low supply versus high demand which pushed home prices higher and home sales to drop.
The spike of supply in mid-2019 also contributed to the shortages of houses this year. This made the decrease more severe than it was supposed to be.
The demand on the other hand looked promising before the start of the pandemic. The wage growth, low unemployment, and low mortgage rates caused the buyers’ demand to go high. But the COVID-19 caused the unemployment to plummet suddenly. Employees working in service industries and hourly jobs had cuts on their pay. Mortgage applications and web traffic in real estate websites have dropped which is translated to low buying demand.
However, housing is not just an investment but a need and people’s circumstances remain the same even during pandemic. This makes the housing market resilient compared to the stocks market. It is just a matter of time and people will be back selling, buying, and moving to new homes.
And as the stock market drops, investors will look for a more durable market, so it’s likely that they will divert their money to the real estate industry.
How will the home buying season this spring be affected?
Judging from how positive 2019 has ended, and how excellent the home buying activities were during the first months of 2020, we were actually looking forward to a great home buying season this spring.
But with the coming of the coronavirus that was declared by the World Health Organization on March 11, things have drastically changed. Buyer interest has dropped significantly and although, basing it from the previous pandemics, we could be positive about the drop of prices to be not as devastating, but still, the economic fallout brought about by Covid-19 could be sweeping.
Mortgage payment suspension if prolonged could seriously cause chaos in the industry as lenders may lose capital to lend to interested homebuyers. Unless that damage will be dealt with and limited, the mortgage industry can quickly recover and bring the housing market back on track.
How long can the housing market start to recover?
The timeline of the virus is hard to determine, so is with the timeline of the housing market’s start of recovery. As long as the virus is not diminished, the housing cannot start functioning as it was.
The data shows that at the start of imposed stay-at-home orders, home listings have dropped significantly. But after a month or so, it has started to gradually rise up in some cities. This could signal that people are adapting to the new normal and doing work-around to continue the business because as was already pointed out, buying a home, selling, and moving to a new one, is a life necessity and not just merely an investment.
This is a really optimistic sign that the housing market is going to spring back as soon as the virus is out of the picture because regardless, people are moving on. All the other factors like supplies, constructions, inventory, home viewings, and others, just have to come by. It may be gradual, but it surely will cope up.
Although we are not certain when the housing market will recover, one thing is for sure. There are real estate investors that are still in business. They still offer cash for houses Los Angeles even at this time of crisis. Say for example, Mrs. Property Solutions. They are a home buying company that takes this opportunity to help out others by buying properties for a fair price.