Today is March 18th, 2020, and the world has come to a standstill. As of today, there have been a confirmed number of over 200,000 infected with COVID-19 and over 8,000 deaths around the globe. As this global pandemic increases and spreads from human to human, it causes one thing amongst all of society; fear. As the world fears and panics, it shows in their actions. People are stockpiling and purchasing more things than usual. Walk into many stores in America and you will see empty shelves where water bottles, toilet paper, disinfecting sprays and hand sanitizers used to be. Faced with the reality of being stuck at home for weeks at a time, the public is ensuring their preparation. The new Coronavirus and the reality of staying in your home are beginning to go hand in hand. But Coronavirus has another relationship with homes, the virus may have a significant effect on the housing market. As toilet paper sales increase, real estate sales could decrease. Let’s take a look at some of the ways our housing market could be affected by COVID-19.
What Does COVID-19 Mean for the Housing Industry?
But first, it’s important to note that no one knows for sure what exactly will happen as a result of these recent events. We can only speculate based on the effects we have already seen from the virus and the historical precedence, especially during the 2008 market crisis and recession.
#1: Supply lines are being disrupted:
One concrete effect of the virus is on home building itself. Home building may be a little tougher now than usual. A large percentage of home building materials are manufactured and shipped from China. As China finally starts to rebound from their own COVID-19 pandemic, they are only now able to start bringing their manufacturing output back to their volume before the virus virtually shut the country down. But it will not happen overnight and because China is one of the largest global distributors, this affects the housing market and the rate homes are able to be built in a considerably serious manner. As less and less materials are being shipped to the United States, this results in a decrease in production of home building.
#2 Lower Mortgage Rates:
The stock market fell to an all-time low this week, signaling the start of another recession. To counteract the economic impact of this crash and support banks and businesses, The Federal Reserve has begun taking drastic measures. Sunday night, the Fed announced further cuts to the benchmark interest rates, bringing it to zero percent. Additionally, as investors sell off their stocks and buy bonds, bonds increase in value and demand. The higher the price of the bond, the lower interest rates start to get. So what does this all mean for the housing market? Basically, when all of this starts to occur, mortgage rates tend to get lower too. We will see lower interest rates, more mortgage lending and more people refinancing their mortgages to lock in the low interest rate. What does this mean long term? It’s hard to know for sure but most economists believe we can expect to see an initial rise and then an eventual decline in the housing market, especially as we head into another recession.
Commercial Real Estate Will Decelerate:
Due to the scare of the virus and the potential spread of it from person-to-person, it is likely that this will hit commercial real estate hard. Quarantines will keep people away from brick and mortar stores, small business will be forced to close their doors, and big companies will begin downsizing. Current projects and construction will be delayed due to shutdowns, employee and material shortages. Potential buyers also won’t be viewing commercial properties currently on the market, resulting in a decrease in property sales.
We all want to know what the coronavirus means for the housing market. Will we see a crash reminiscent of the 2008 mortgage crisis? Will we bounce back quickly? Are we headed for a recession or a great depression? As dramatic as these question can be, they are important to address so we can prepare for whatever the outcome may be. No one fully knows what the effect of all of this will be. Although the scare of the virus is resulting in significant changes to the housing market, the market itself has not yet been drastically affected by the virus. As we’ve seen, however, the situation changes every day and hour, so who knows what tomorrow holds. Right now, it’s important to remain calm and avoid jumping to any drastic measures before we have a more concrete hold on the situation. Although surroundings may seem difficult, considering that inventory is low and demand is high, you can still purchase a home. Each individual has a different situation and the best solution is to make decisions based on that. If you have the right amount of money, and the property is right for you, check out our properties page, you still have the power to make that purchase, regardless of what virus is in the air.
*We are not financial advisors and any decisions should be made by each individual themselves, based on their own economic situation. *