How Will Coronavirus Impact the Real Estate Market?
Over the past few weeks, life has changed drastically for most Americans as the COVID-19 pandemic has continued to spread through the country and dire warnings are being felt throughout the world. There is no choice but to take it very seriously and do everything we can to contain the spread. This has led to the closure of schools, sporting events, gyms, restaurants for dine-in, and many businesses and entertainment venues. We are just beginning to feel these effects and the lack of traffic and life in this city right now feels surreal.
Real estate/housing is a necessity and it is unclear how it is going to be impacted. Will people still move while the Coronavirus shuts down everything else? Some will. Most real estate agents are still working, although some listings have been put on hold. As of now, there are still some open houses, but the number is waning and the traffic is declining. The use of virtual tours seems to be getting a lot of traction, at least as an available option. Most escrow and lender offices are working remotely, but technology allows that to happen. The LA County Recorders Office is closed to the public, but they are able to accommodate electronic title recordings, so deals are still able to close.
In terms of short term supply and demand, supply is just as likely to be reduced just as much as demand, creating even more of an inventory crunch for those who have no choice but to move. I do not think many of these people are going to change their plans, although there are some who might be buying a second home or making a non-essential move who will be more likely to back out or put their purchase plans on hold. International demand will definitely be lower as getting a flight into the United States from Europe and many other locations is currently not possible. Low interest rates could motivate people who plan to buy at some point to continue home shopping, although I do not think the small drop in rates is going to get people who were not planning to buy anyway off the fence. At the same time, most sellers who need to move will likely still attempt to sell, however non-essential moves will be put on hold by the urge to “hunker down” or advice to “shelter in place”, reducing already low supply. Real estate prices are stickier in the short term than stocks, so I don’t anticipate a large drop in prices during the “quarantine” period.
As the virus panic subsides and life returns to normal, hopefully by late spring, a lot of wealth and jobs will have been lost and we will be in a sharp recession. Fortunately, the economy was strong when this pandemic began, so the recovery will be quicker than it otherwise would have been. This feels more like a September 11th style recession triggered by an unexpected event, uncertainty, and fear, not anything like the financial crisis of 2008. After the pandemic has been resolved, housing demand will decline due to the lost jobs and probably the temporary loss of wealth for those who can purchase will lead to being more conservative with purchases. If pent up supply all comes on the market at once, combined with less consumer wealth, prices will likely decline this summer and fall.
One thing that could drastically alter the landscape is the moratorium on evictions in certain jurisdictions. While this is the compassionate thing to do for renters whose income is affected by the Coronavirus, there are a lot of mom and pop landlords who depend on these rents to pay their mortgages. Considering the number of people who will be impacted, the number of non-paying tenants will be great. Since many renters live paycheck to paycheck, it is going to be hard to catch up on rent, even after income resumes. If business shutdowns and the moratorium continues for more than a few months, we will start to see a lot of these landlords go into default. There needs to be protection for the landlords as well, otherwise, their nest eggs could evaporate or many could lose their properties.
While real wealth has already been lost in stocks and many businesses are going to have a tough time getting through this, things will eventually return to normal and we will have a new found appreciation for the freedom and entertainment options we took for granted as well as the hustle that keeps the economy churning. Now is not the time for fear. It is the time to make smart decisions to protect your self and wealth as well as to be opportunistic when an investment opportunity makes sense. Fear will keep a lot of people on the sidelines.