In this Real Estate News Brief for the week ending April 18th, 2020… we’ll take a look at whether the pandemic will impact home prices, the good news about rent collection, and what banking regulators are doing to help home sales.
We begin with economic news from this past week, which hasn’t been great, but there are a few bright spots, including plans to loosen up “stay at home” orders over the next several weeks. It will likely be a staggered opening of states that are less affected by the pandemic. The timeline will depend on several factors, including the rate of infection and the ability for more widespread testing.
In the meantime, many Americans have been able to pay their rent because so many people found they were able to work from home, some businesses pivoted and were able to reinvent themselves — like restaurants offering take-out and many businesses being considered “essential” like construction, hospitals, and police. Many landlords are reporting solid April rent collection numbers, and for tenants who’ve lost their jobs or some of their hours, they’ve been able to set up payment plans.
The latest jobless report shows another 5.25 million people applied for benefits. Economists say unemployment may currently be between 15 and 18%, with about 21 million unemployed. But many of those people are earning more through unemployment benefits than they were from their actual jobs.
Housing construction has slowed, and that’s adding to the unemployment numbers. (1) A survey by Associated General Contractors of America shows that 40% of construction workers are idle. The slowdown has resulted in a 22% drop in housing starts and a 6.8% drop in permits. Interestingly, though, those numbers are still higher than a year ago.
And in spite of all the gloomy news we may see in mainstream media, a report from DocuSign that says there’s been NO slowdown in activity among real estate clients. (2) CEO Dan Springer says he’s seen challenges in the travel and hospitality industries, but so far, not in real estate.
This has been the case for us at RealWealth. Every day I have interviewed property managers from around the country to see if things have changed, and I’ve been shocked to learn that for all of them, it’s been business as usual. And for some, they’ve seen more high quality rental applications than normal.
On a side note, in spite of my concern that the San Francisco Bay Area would get hit the hardest from this crisis due to its high home prices and fewer available jumbo loan options, I was shocked to speak with my niece this morning who is a realtor in San Mateo. She said she’s busier than ever, and every home she lists has 20 offers within days. That took me by surprise.
It could be because low mortgage rates continue to entice buyers. Freddie Mac says the average 30-year fixed-rate mortgage dipped two basis points this last week to 3.31%. (3) The mortgage guarantor said on its website that, “Real time daily economic activity metrics suggest that the economy will likely not decline much further. Going forward the key question is no longer the depth of the economic contraction, but the duration.”
In other news making headlines…
Home Prices to Hold Steady
2020 home prices are expected to hold steady, despite the economic impact of the pandemic. UBS Wealth Management Americas issued a report that shows the housing market is in better shape going into this than it was during the 2008-2009 housing market collapse. (4)
It also said the price stability may vary depending on the market. UBS’s Jonathan Woloshin said in the report, “Cities that rely heavily on leisure, tourism, and retail sales as well as cities with very low affordability levels could be at risk for price declines.”
Virtual Tours on the Rise
The use of virtual tools and tours is contributing to more and more real estate sales. The National Association of Realtors reported that 25% of Realtors said their clients signed contracts last week without ever seeing the homes in person.
The NAR survey also shows that buyers are putting in offers more quickly. This last week, they made a decision after touring about three homes either in person or by internet. A survey from last year shows they typically looked at nine homes before they would sign a contract.
Paying the Rent with Stimulus Checks
Stimulus checks are helping many Americans pay their bills. According to a survey by Creditful, a good portion of the money will go toward groceries and other bills, like utilities, but one in four say it will be used for the rent or mortgage. (5)
Some tenants are also using their credit cards to pay rent. As reported by the Wall Street Journal, digital property-management platform, Entrata, shows a 13% increase in the use of credit cards. Another company called Zego, Inc., that processes rent payments, has noticed a 30% increase.
The National Multifamily Housing Council’s rent tracker shows an 84% April collection rate among apartment dwellers. That’s down from a normal of about 90%. Our own property teams are reporting excellent results for tenants in single-family homes. We’ve heard from some that say they are dealing with a few hardship cases, but overall, April has been similar to a normal month.
Appraisal Deadline Expanded
Banking regulators are also doing something to make it easier for real estate transactions to close. They announced that banks will be able to delay the mandatory appraisal for as long as 120 days after the deal is closed. That’s for both residential and commercial properties, once the rule change is entered into the Federal Register.
This applies to banks that are monitored by the Fed, the FDIC, and the OCC. It also pertains to loans that are kept in bank portfolios. That means that loans sold to the FHA, HUD, the VA, and Fannie Mae or Freddie Mac will still need an appraisal before they close. But those agencies have also relaxed their appraisal requirements. They vary from agency to agency, but include drive-by and desktop appraisals.
(4) Barron’s Article