COVID-19, better known as “Coronavirus,” is touching all aspects of life in the United States. Of course, given the widespread impact of Coronavirus, it was only a matter of time before it started affecting the real estate market.
While this pandemic is creating new real estate-related dynamics, people aren’t going to fully stop buying and selling homes. But what are the new dynamics that buyers and sellers should be ready to navigate? Here’s a look at five ways Coronavirus will influence the real estate market in the coming weeks and months.
1. Low Interest Rates
In fall of 1981, 30-year mortgage rates averaged about 18%. Buying a home with that high of an interest rate is unheard of in the 21st century. In fact, over the last few years, 30-year mortgage rates have hovered closer to 4%. Many have been saying things like, “They can’t go any lower, right?”
Well, we’re about to find out. According to Freddie Mac, a 30-year fixed-rate mortgage averaged 4.46% in January 2019. By January 2020, that figure had dropped to 3.62%. Now, given the rise in unemployment, the drop in the stock market and the likelihood of a recession, mortgage rates could drop even lower. It’s astonishing to see for anyone who bought in the early 1980s – and it’s a huge opportunity for buyers.
2. Less Inventory, Fewer Buyers
The National Association of Realtors is conducting a series of flash surveys. On March 9, 81% of agents said their sellers had shown no interest in removing homes from the market. By March 19, only 61% of agents were saying the same.
On March 9, only 16% of agents had noticed a decrease in interest from their buyers. By March 19, that figure had spiked to 48%.
During this Coronavirus crisis, we’re likely to see fewer buyers and fewer sellers. If those drops occur proportionally, the average buyer and average seller may not experience any change in the competitive landscape. But it’s worth keeping an eye on as the NAR conducts more surveys.
3. Widespread Price Corrections
During the boom of the late 2010s, it was common to see overpriced homes hit the market. There was so much competition in hot markets like Phoenix, Denver, Nashville and San Francisco that overpriced homes often received offers for asking price (or higher).
That’s likely to change in the short-term. In our market and in markets nationwide, we’re likely to see homes more aggressively priced to sell. There are fewer buyers out there, and motivated sellers are going to price in a way that captures immediate attention.
4. More Incentives
Speaking of standing out to a limited number of buyers, we’re likely to see sellers offering more incentives. Pre-inspections may be offered to ease cautious buyers’ minds. Update or repair allowances may be more plentiful. Sellers may be willing to pay larger portions of closing costs. Appliances like washers, dryers and refrigerators may be included in some cases.
As noted above, people still have to buy and sell homes. An owner may need to sell to take a job in a new city. An owner may have already purchased a new home and need to get equity out of an existing home. Or, in some cases, an owner may need to sell to get out from under an expensive mortgage payment.
In each of these cases, the owner needs to sell as quickly as possible. And incentives may help owners do that.
5. Long-Term Unknowns
What we’re seeing in early spring of 2020 may be the start of long-term changes in the real estate market. But the dynamics we’re experiencing right now may also represent a short-term blip in the market – and we may be back to business as usual by late summer or early fall.
This is different than what happened during the Great Recession of 2008 and 2009. Then, the residential real estate market and bad mortgage debt drove the financial crisis. That is not the case right now. What we’re experiencing is directly related to a pandemic. Does that mean real estate will be less affected? While we can already see short-term trends emerging, there are many long-term unknowns.
As we navigate this global health crisis together, I’m always here to answer your questions about our local real estate market. I’ll be keeping a close watch on what’s happening so that I can provide the best advice, guidance and recommendations to both buyers and sellers. Email me any time at pthessen1@gmail.com.
-by Perry Thessen
