How will Covid-19 affect the real estate industry

It depends on how long this lasts and the severity of the hit to the economy. Housing prices rise and fall much slower than the stock market but the fundamentals are the same, supply and demand. If there are more sellers than buyers, prices fall. If more buyers than sellers, prices rise. Right now, buyers are scared and that is going to but a big damper on the buyer pool but most sellers will choose to pause as well.

Part of the good news: we are starting from a low inventory market, which will give the system some slack to absorb the coming inventory.

This crisis could be different, at least initially because a lot of sellers will not put their house on the market until this blows over, which will keep inventory low. Therefore, even with a huge drop in fearful buyers, low inventory will keep prices from falling too fast. Think an extended January market. Its like 6 months of January, very few sellers, very few buyers, prices hold their own until the spring market hits and then prices rise as buyers need to outbid each other in order to win the house.

The problems will come if this is an extended winter when people start losing jobs and not being able to afford mortgage payments. Then we have a foreclosure crisis just like the housing crisis of 2006 -2010 over again. This starts at the bottom and eats its way up the housing chain to eventually affect the move up buyers and the luxury market.

The only way I see this not happening right now is if this is a short quarantine and everything gets back to normal fairly quickly and that doesn’t seem to be the case.

Initial reports from the National Association of Realtors show house showings to have dropped to levels similar to the 1st week of January, which is when only the people that really need a house are out shopping. That data was through March 17th. I would expect these numbers to continue or even drop to levels less than that. See the graph below, the axis on the left represents the percentage change in showings from the first week of January to the current week. See where the lines cross over, that is about March 12th when everything began to shut down. In a normal world, every week from Jan. 1 to the current week showings should increase until a peak around June. The good news is the showings aren’t less than January, yet, but we will watch that going forward. I think we could handle low showings but if that number gets under 0%, the market is shut down. Hopefully if it does shut down, its for a few weeks and then begins to rise. This will be an important statistic to watch.

The good news about the virus and real estate is how showings happen. Buyer and Seller don’t need to meet. An agent and the buyer can stay 6 feet away from each other. Other than the door knob, which could be sanitized, nothing needs to be touched. So, from a health stand point, there is no reason that a housing market couldn’t continue. Obviously, there are the financial concerns, but from a functionality standpoint, this can continue. There are virtual tours and video to cut down on showings until necessary. I was out yesterday looking at houses. The buyer rode in their own car and we were aware of our distance.

All that being said, as this goes on, houses will sell, buyers will buy, especially as we can see the end of the tunnel. Investors will step in looking for opportunity. Interest rates will most likely be the lowest they have ever been trying to generate opportunity for buyers, especially first time home buyers.

Obviously this is going to affect the housing industry. The Sellers who get hurt the most are ones that sell and don’t buy. It can be a great opportunity if you are selling and then buying a different house, but just make sure you can sell your house. And if you are buying and not selling, it can be a great opportunity. People always need a place to live, that will never change and there have been housing crises for as long as there has been real estate. In the late 70’s there was the interest rate crises when rates where almost 20% and sellers had to pay 25% points to a buyer to sell. The dot.com bust, the Great Recession. They are all a little different and we will watch how this one plays out.