The U.S. was expecting to have one of the best spring home-buying seasons in years, until we got hit with the coronavirus daily news. Still some markets continue to boom, while others are on a time-out.
In California, where there’s a statewide shelter-in-place order, the California Association of Realtors also advised against any open houses, home tours or face-to-face meetings with clients. (1) That scene is playing out in other markets as well, even as low interest rates dangle like a carrot in front of our noses.
Existing home sales went sky-high in February. The National Association of Realtors says they were up 6.5% from January. It was the biggest month-to-month sales increase in 13 years. New home sales dipped in February but they were coming off a 13-year high in January. Home sale numbers for March are expected to fall off sharply because of the virus. The Wall Street Journal reports that many economists don’t expect the housing market to collapse like it did in 2008, but we could see a slump in some markets and a jump in others, which has already begun. (2)
NAR Survey on Buyers, Sellers
The National Association of Realtors conducted a survey on March 16th and 17th that shows a drop in home buyer interest because of the coronavirus outbreak. Forty-eight percent of participating Realtors said that buyer interest was down. That’s up from 16% in just one week. There was also an increase in the number of Realtors who’ve noticed a drop in the number of for-sale homes.
NAR’s chief economist Lawrence Yun says, “The decline in confidence related to the direction of the economy coupled with the unprecedented measures taken to combat the spread of COVID-19, including major social distancing efforts nationwide, are naturally bringing an abundance of caution among buyers and sellers.” As for the decrease in inventory, he says, “With fewer listings in what’s already a housing shortage environment, home prices are likely to hold steady.” Yun believes that once the quarantines are lifted, that the real estate market will experience a “strong rebound.”
The survey also shows that a majority of Realtors are not seeing any change in the behavior of buyers and sellers, which would account for markets in other parts of the country that haven’t been severely impacted. At the time of the survey, 61% had noticed no change in sellers delisting their homes. But a week before, 81% had given that answer, so we could see things change even more in the coming weeks. It appears that sellers have shown the most reluctance to engage in purchase activity. Only 40% of Realtors said there was no change there, and that’s down from 77% the week before.
Sacramento Home Sale Slump
These numbers show how quickly the situation can change, and the rate of change we may see during this crisis. The Sacramento Bee reports that more than 340 sellers in the Sacramento area removed their homes from the market in just 10 days. (3) That’s about 11% of the inventory in that area. Analyst and appraiser, Ryan Lundquist, told the Bee that many sellers are postponing their plans for the foreseeable future while some are canceling their plans altogether. He also highlighted another issue. He says, he won’t be doing in-home appraisals but will determine value by other means.
Erin Stumpf, of the Sacramento Association of Realtors, says there’s an effort to close deals that were already in progress, but it’s been more difficult because of the need to avoid person-to-person contact. Stumpt says, “If we engage in physically meeting people and taking them into somebody’s home, that is potentially risky behavior, especially if it is an occupied residence.” She says, “Our clients should be staying home. We should be staying home.”
In some cities, many condos and co-ops have implemented a “no move in, no move out” rule to limit the spread of the virus within their complex. And that would make it difficult for someone to buy or rent.
Also, many purchases are in a state of limbo if appraisers can’t appraise and inspectors can’t inspect, title companies can’t record or if any of the workers involved gets sick. As a result, many buyers are now adding a Covid-19 clause in their contracts that would allow them to postpone closings or even back out entirely without penalty if the virus interferes with their closing.
However, as we know, real estate is hyper local. Real estate broker Jay Hinrichs in Oregon said he was selling one of his “flips” to a first time buyer with an FHA loan who was laid off from a Casino, but that all she needed was a letter from the Casino stating she would be back to work next month, and was able to close on her loan. He said he sold six properties in the last 10 days with no cancellations, and a Portland home he recently renovated had seven offers in two days, plus 30 people on a waitlist for new homes on a development in Canby, Oregon, with price points starting at $500,000.
Russel Brazil wrote that he listed a property for $519,000, received multiple offers and is now in contract at $550,000. Though he did say there seems to be less interest in homes over the $800,000 price point.
Virtual Home Tours
Another silver lining to social distancing is the burgeoning virtual marketplace. As more people sit at home, they spend more time online. Virtual home tours are getting more popular, and that’s keeping some buyers and sellers in the market. Most of a home sale can be done online and remotely so many realtors are using this opportunity to produce more video home tours. That sort of activity was already gaining ground before the virus, but is likely to become quite popular if this virus sticks around for a while. Realtor Tim Collom, says, “Video production will be the new way to sell homes safely. We haven’t had any virtual offers yet, but it is early on. People will have to change.”
And they will be enticed by those low mortgage rates, so long as they are still employed. Temporary unemployment will force some people to postpone their plans, but for those who are lucky enough to hold on to their jobs, and a good credit score, this crisis could produce a few good opportunities. Mortgage rates have crept higher in the last few weeks but only because loan agents are trying to control the demand. Many lenders foresee them going lower in the coming weeks, which would make a new home loan even more attractive.
For investors looking to better understand the rental market during these changing times, we have launched a series of daily webinars, interviewing property managers from around the country to tell us what is going on in their markets. Learn more here.