What a week. While the Coronavirus and its effect on Wall Street, the economy and of course, our health and safety has dominated our conversations, I’m going to focus on how it could affect the U.S. housing market. As we know, home sales were headed for a hot spring season because of low mortgage rates and a strong economy. And then the coronavirus came along. It has brought mortgage rates even lower, but it’s also causing an economic disruption like we haven’t seen before. Will it be a minor blip on the charts? Or… is this the black swan event that could usher in that recession so many people have been fearing?
The chief economist at Moody’s Analytics, Mark Zandi, referred to the economic upheaval and the low mortgage rates in a Bloomberg article. (1) He said, “Housing is being buffeted by two gale forces moving in opposite directions. The question is, what’s the end result of all that?” Some people feel the low rates won’t be enough to offset the impact of the virus, and that recession is now more likely. Zandi is one of them.
Coronavirus Impact on Real Estate
This is happening in the midst of what has been perceived as a strong economy, and what housing experts expected to be a very hot home buying season. It began early, in January, and was ramping up quickly. But in a matter of days, the virus started spreading in the U.S., and that took the stock market down. As Bloomberg points out, many home buyers had their down payments wrapped up in those stock accounts.
If we hear positive news about the virus, such as a vaccine, or containment, the stock market will probably come roaring back to life. But most experts don’t believe a vaccine will be out for at least a year, and that containment would be very difficult because it could mean mass quarantines.
As a result, many parts of our social fabric have come to a halt. Travel is either discouraged, or officially restricted to some places. College classes are going online. People are being encouraged to work from home. Large and small events are being cancelled.
In fact, California Governor Gavin Newsom announced on Wednesday, March 11, that California public health officials have issued an updated policy on gatherings to protect the public and slow the spread of COVID-19. Gatherings should be postponed or cancelled across the state until at least the end of March. Non-essential gatherings must be limited to no more than 250 people, while smaller events can proceed only if the organizers can implement social distancing of 6 feet per person.
Housing Market Hits “Bump in the Road”
Store shelves are evidence of the uncertainty. You can’t find a roll of toilet paper in stores right now, or hand sanitizer, or even rubbing alcohol to make your own hand sanitizer. There’s still plenty of food in stores, but don’t try to buy bottled water! Bloomberg writes, “As Americans hunker down at home, forgoing vacations and movie dates, service and retail workers may lose their jobs.” And that could shake up our strong job market.
Job losses would impact many parts of the economy, including home sales. Chief economist for the National Association of Realtors, Lawrence Yun, expects them to flatten or fall slightly, because sellers and buyers will postpone their plans. He told the Wall Street Journal that NAR was predicting that existing home sales would hit 5.5 million this year. (2) That’s up from 5.3 million during the past two years. He says, “I thought that there would be a steady increase from January pretty much throughout most of the year. Obviously, we hit a major speed bump.”
There’s already been a noticeable drop in buyer and seller traffic in some areas. A NAR survey shows that overall buyer traffic is down 11% and seller traffic is down 7%. Some agents told the Journal that fewer buyers are coming to open houses and that some sellers don’t want people coming into their homes. The Journal says that Redfin is encouraging people to tour homes online. What could this add up to? NAR says it could take a 10% bite out of spring home sales.
Florida Home Sales Doing Well
But not all the headlines are so glum. The News-Press out of Fort Meyers, Florida, says that home sales are on fire. (3) According to data from the Naples Area Board of Realtors, and the Naples Daily News, contract signings were up almost 17% from February 24th through Tuesday March 10th. There were 824 pending sales during that same time period, compared to 705 the year before. Closings were up 20%, and showings were up 35%.
Realtor Bill Duffy told the News-Press, “I am not seeing any current impacts from the coronavirus on our local real estate market, and I do not see it as a potential threat to our local economy as much as a return of red tide or blue green algae.” He believes that the stock market gyrations could lead to more interest in real estate because it’s a more stable investment.
The CEO of Cushman & Wakefield Commercial Property in Southwest Florida, Gary Tasman, says of the current ruckus, “Oddly, it can affect us positively.” He thinks that people who’ve been on the fence about moving to Florida may decide that “now” is a good time to do it. That may be due in part to the belief that the virus does not spread as quickly in warmer climates. He also thinks that investors will do well in the state of Florida. He says, “I think investment property is going to be on the growth side frankly,” although he believes we may have a few rocky months ahead of us.
So what’s this all mean for individual investors?
While home sales may slow down, conversely that could mean that more people continue renting. If you didn’t have most of your funds tied up in the stock market, there could be opportunity ahead to buy discounted real estate with record low interest rates, and strong demand for rental housing, particularly in areas with warmer climates.
On a side note, Real Wealth cancelled live events for March 14th and 15th, and instead went virtual. We hosted a video investor panel, asking three Real Wealth members about their experiences thus far as they build their single family rental portfolio nationwide. We also had property teams from Jacksonville, Florida; Indianapolis and Cincinnati, Ohio, join us to share what’s going on in their markets, and showcase available investment properties in those areas.