Throwing a wrench into all facets of life including real estate, the onslaught of COVID-19 has substantially reduced home buying and selling activity around the U.S.
While many people are now choosing to delay a home purchase or sale and stay in place until the pandemic has subsided — whenever that may be — others are still buying, selling and signing new leases.
“It’s not business as usual, but by no means has [the real estate market] stopped entirely,” says Skylar Olsen, director of economic research for real estate information company Zillow. “What’s happening to us right now is not being driven by a market failure,” which is good news for the rest of 2020.
But as economic uncertainty and personal financial concerns grow, experts see some changes ahead in the housing market even after the threat of COVID-19 has peaked.
At the start of 2020, many economists expected homebuying to remain healthy throughout the year, bolstered by fairly low mortgage rates — below 4% — though held back slightly over concerns of a future recession to occur in 2021 or later.
When the coronavirus first caused stock markets to drop dramatically and the spread of COVID-19 led to widespread school and business closures and shelter-in-place or stay-at-home orders, mortgage rates initially dropped as lenders tried to offset the scare.
While this led to a brief rush of would-be buyers and homeowners applying for mortgages or refinancing, low rates unfortunately haven’t been able to sustain homebuyer activity.
Likely a mixture of orders to remain at home and concerns about financial stability and employment, recent homebuyer activity has dropped dramatically. In a survey of more than 3,000 real estate agents conducted March 16-17 by the National Association of Realtors, 48% reported a decrease in homebuyer interest due to the coronavirus outbreak.
The question of the scale of impact that the housing market and the economy will see hinges on how prolonged the spread of COVID-19 will be. “If it lasts too long, will people’s affordability be completely eroded?” Olsen asks. If so, the recession we reasonably expect now due to the temporary decline in productivity and activity will become what Olsen refers to as a “real recession,” where returning to previous levels of productivity and activity will be much harder.
As homebuyer activity has dropped significantly, many sellers have decided to delay putting their homes on the market, both to continue social distancing and eliminate the need to move in the middle of a pandemic.
While activity has decreased, however, agents are still showing homes — by video tour (or in person with limitations in place, practicing social distancing and adhering to strict health guidelines) — and homes are still going under contract.
Zillow, for example, reported that the last week of March, compared with the average from February, saw a 408% increase in users making 3D videos for homes on the market.
Right now, the challenge is to make sure homes that are on the market don’t linger. Real estate listing agents are highly focused on strategic and appropriate pricing.
The outlook for home sellers after the pandemic, like with buyers, depends on how long quarantines and the spread of the virus last. As more homes that would have been on the market at the start of spring remain unlisted, we can expect to see more go on the market shortly after the pandemic ends.
Experts don’t have many historic examples to compare to for predicting how the market will react in the course of the pandemic and over the long term. Since the housing market is very different from what it was more than 100 years ago during the Spanish flu pandemic, the SARS epidemic that occurred in China starting in 2002 serves as the best example.
During the SARS outbreak, real estate transaction activity in affected parts of China experienced a significant drop, similar to what we’re seeing today in the U.S. Here, buyer activity fell first and fastest where the virus initially appeared and where isolation measures were first instituted — notably Seattle, San Francisco and much of the rest of California.
One hopeful takeaway from the SARS epidemic is that home prices, and the housing market in general, weren’t significantly impacted in the long run. Once the epidemic subsided, homebuyer and seller interest returned fairly quickly.