The coronavirus pandemic paused all sectors of the economy, and real estate is no exception. Many buyers rethought about reassessed their planned purchases, and sellers re-evaluated the state of the market. Some areas such as Los Angeles, where affordability for new homes was already stretched, will see the potential for pricing declines in the coming months. So, how will real estate fair? Here are several near and long-term trends, including some that will stick with the market long after the pandemic subsides.
Motivated Buyers – Not Browsers
With restrictions on open houses, there is an increase in people browsing online and attending virtual open houses. Those attending virtual open houses are motivated to buy because even though these are unprecedented times, the world hasn’t completely stopped. Some people may have already sold their current house and need a home, others might be relocating for a new job or might need more space because their family has grown. All these reasons, and more, have found motivated buyers.
Rates Stay Low – Will Prices Stay High?
Interest rates should stay low for the foreseeable future which will encourage some buying and provide refinance opportunities. Some lenders like Wells Fargo predict interest rates will fall below 3% for the third and fourth quarters of 2020, and potentially into 2021.
The only problem with the lower rates is that a number of banks for conventional mortgages have raised their mortgage borrowing standards, which resulted in higher credit scores and higher down payments. This will reduce the buyer pool, especially for new homeowners.
On the pricing side, limited inventory should keep short-term pricing higher. Sellers are taking their homes off the market or not going forward with planned sales. This depresses the inventory of available homes, which should keep pricing stable. This will continue until next year, when we will see pricing dependent on the current virus and related economic conditions.
There are two big unknowns for 2021: How people will pay off their loans, especially if they already had loan modifications, and how many people will still be out of work by the end of this year. If people are struggling to pay, and because most people have little to no equity in their home, it could be devastating, especially if housing prices decrease in value. Also, the longer people are out of work, the more they will start to default on their mortgage.
COVID-19 forced millions of people to work from home. Many used the kitchen table or their bed as an “office.” Facing this arrangement long term, some families will yearn to relocate into new homes or apartments with home office spaces. New home builders and current home sellers will shift their offerings to accommodate home offices.
The lockdown also puts a premium on outdoor living spaces, including patios and yards. Families with access to these areas are appreciating them during the pandemic. This should increase the appeal of homes with these features, especially with the threat of future stay-at-home and distancing orders.
Foreclosure Impacts Coming 2021
It is unlikely the market will see a drop similar to 2008. In the Southland there was a 35% drop in the average home price seen in January 2009 compared to the peak in December 2017. Many current homeowners enjoy more equity in their homes than the average owner in 2008.
Foreclosure increases depending on the area of the country will have an uptick, but will not increase until next year. Most areas implemented foreclosure rules that offer some protection during the pandemic. However, foreclosures will rise as these rules expire, and unemployed and financially distressed owners struggle to make payments.
After some states “open up” we’ll see an uptick in home buying. This spring, predictably, did not see a boost in viewings and purchases, but the growth in virtual open houses should boost demand. Buyers will turn to virtual showings to get a first glance at a home, and then arrange an in-person viewing if that fits their risk tolerance.
Virtual showings will continue for the foreseeable future on a person-by-person basis as buyer’s asses their risk tolerances. Many brokerages have already launched virtual open houses, where the agent gives virtual tours of a home through Matterport, BombBomb, Zoom or another platform. This is a trend with legs, as buyers, sellers and agents will adjust to the efficiency and opportunity of virtual showings.
Real estate pricing and demand is always regional. COVID-19’s impact hit the entire country and broader economy. However, regional housing markets will recover and see price drops at different rates based on the severity of the lockdowns and regional economic struggles.