COVID-19 Sweeps Through Real Estate
You’ve certainly heard about the Coronavirus at this point and have likely begun to think about the impact of the virus beyond just people getting sick. What is the coronavirus impact on real estate? COVID-19 wreaking havoc on supply chains and global economies from manufacturing, travel, service industries, household supplies, hotels, medical supplies, etc. It is looking likely that these impacts will continue to sweep globally to locally as more and more people in the United States become infected with the new coronavirus. How will the novel coronavirus affect our local real estate market?
No one knows for sure how wide reaching the effects COVID-19, both the illness, economic and social impacts will be. What we’re seeing unfold in the world right now is unprecedented. The US stock market has reacted negatively, and stocks have dropped rapidly. In previous economic downturns, we often see people become more conservative about spending money, which means they may put off making major purchases, such a buying a new home. Cash buyers may decide to wait if they have their money tied up in stocks and don’t want to sell low. A weaker financial market can cause instability in real estate markets, but some buyers will view this as an opportunity to scoop up investment properties. Here in the greater Iowa City area, past data indicates that we tend to have a very insulated local market that doesn’t see the extreme ups and downs that some other locations do, thanks to the presence of the University of Iowa in our local economy. Will that hold true during this tumultuous time, too?
Lower Mortgage Rates
The Fed recently cut rates, and we are now seeing mortgage interest rates at historic lows. Usually, low mortgage interest rates boost home sales, but we are in uncharted waters right now with growing feelings of public hysteria. No one knows for sure how the novel coronavirus will impact real estate sales, but it is clear the federal government is doing what it can to keep this aspect of the economy moving. Our local spring real estate market up until this point, from my point of view, is off to a red-hot start for the spring of 2020. My phone and email inbox have been on fire and I have been working 10-12-hour days trying to meet the needs of my clients. I have been busier than I ever have been before. Buyers obviously see the opportunity at hand, and want to take advantage of it, and sellers want a chance at all those buyers. The very low mortgage interest rates mean there are more buyers in in the market right now, and those buyers are able to afford more than they would previously have been able to swing.
A Pandemic Comes Home
Will COVID-19 change the way we do business? Real estate, by and far, is a very personal business. As a real estate agent, I frequently meet with clients, spend extended amounts of time with them, tour multiple properties, touch a lot of surfaces while exploring the home, and travel from place to place within a short period of time. If we are entering into a new social landscape where people are fearful of exposing themselves, or spreading a virus, how will we adapt to meet the needs of our clients, both buyers and seller?) The first confirmed cases of COVID-19 were reported in Johnson County Iowa the second week of March 2020, and it is popping up rapidly all around the country. Real estate agents I know in other parts of the country are already seeing new situations arise because of the virus. For example, some sellers are deciding to cancel open houses because they aren’t comfortable with the risk of an infected person coming into their house. Other sellers are requiring all visitors to use hand sanitizer upon entering and are asking their agent to wipe down counters and doorknobs with disinfectants after people leave. The National Association of Realtors predicts at the very least the coronavirus could cause some people to put home sales on hold, which is predictable if a buyer or a seller is not highly motivated. As a result, I would not be surprised to see a decrease in inventory if those non-highly motivated sellers drop out for this spring selling season while they wait for the uncertainty of COVID-19 to pass.
Will COVID-19 change the way buyers look at homes? A home’s online presence is already a huge factor in attracting buyers, but most buyers still want to tour a home in person before making a decision. After all, there are some home qualities that are best ascertained through a physical examination, such as quality of construction, odors, traffic noise, condition of neighboring properties, etc. However, if buyers are fearful of increased exposure risk to the coronavirus, the importance of video will only increase as a way for potential buyers to virtually tour the home. Buyers may need to become more comfortable with not physically viewing all properties during their decision-making process. Working with a Realtor® who is very dialed into a buyer’s needs and wants will become even more heightened than it already is. Buyers and sellers will likely become even more interested agents who offer video, 3D and floor plan services as a way to help people understand the look and layout of the property.
Many corporations are making announcements about their polices regarding the coronavirus, The National Association of Realtors, which you can see here, but the unnerving difference is that selling a home usually involves inviting strangers into your home.
In terms of new construction, it’s a mixed bag right now. Crude oil and lumber prices are down, but here in the US we rely heavily upon China for many products used new construction, such as cabinets, flooring, lighting, plumbing fixtures and major appliances. If China’s industrial sector has been shuttered, that will mean major supply chain problems here for builders, which will ultimately equal higher prices for consumers, as well as longer build times.
Beyond the serious health concerns, the impact of the coronavirus on national and local economies is looking dire, and the situation is fluid and rapidly changing. There are some truths to keep in mind as we watch the situation:
- People need homes to live in.
- People are financially motivated and interest rates are low right now, BUT, as the same time…
- People are afraid of the unknown. It is too soon to determine if this unknown will keep some would-be home sellers on hold, creating a shortage of inventory.
Another huge unknown is if our community will see quarantines the same way we’re seen them in China and Italy. If that were to happen locally, the effects on local real estate would be swift and extreme, although likely short lived. People physically looking at homes would come to a screeching halt. Property that was currently under contract could be at risk because people may see finances affected by not being able to work and their financing may fall apart. Negotiated components of the transaction may have to be put on hold because work and repairs would not be able to be completed, and if appraisers, attorneys and mortgage processors are working less, or not at all, that could mean seriously delays in transactions.
I don’t have a crystal ball in order to tell you what is going to happen. I can only make educated guesses. I don’t want to add to the public hysteria over COVID-19, but I also believe in the power of planning. If you’re thinking about buying or selling in the near future, I would encourage you to think through these issues. Housing is a basic human necessity, and I think buyers and sellers who are highly motived, those who NEED to buy or sell, will likely still be active despite the turmoil. I think sellers may impose additional levels of health protection in terms of what they require visitors to their home to do, and the “free for all” aspect of open houses may slow way down for the foreseeable future. I think video and other methods of touring a home without physically being in it will become highly sought after by all parties involved—buyers, sellers and agents. Don’t be surprised to see new construction prices to increase and build times lengthen. Average days on market (the length of time it takes to sell a house) will likely increase, and the extended deadlines should be expected. Buyers who DON’T have to sell a house to buy a house will be in a power position because sellers won’t want to hitch their wagon to even more uncertainty.