Post written BY
ANTHONY SANFILIPPO

HOW COVID-19 COULD IMPACT THE REAL ESTATE MARKET

Covid-19, or coronavirus, is all that everyone is talking about. And there are dozens of questions related to it. Is it preventable? How fast is it spreading? How dangerous is it? Will a treatment or even a cure be found in time?

All those questions are fair, and from a public health standpoint, should be asked and answered by those who are tasked to answer them – like the Centers for Disease Control.

However, this global pandemic, while terrifying millions around the world, is also having an impact on global financial markets and likely will impact the U.S. Real Estate market soon.

“U.S. MORTGAGE RATES HIT AN ALL-TIME LOW IN EARLY MARCH, WITH THE AVERAGE RATE OF THE 30-YEAR FIXED-RATE MORTGAGE DROPPING TO A STAGGERING 3.29%.”

Mortgage interest rates are plummeting, and according to a report on CNBC in early March, they could fall as low as zero percent, and even then, the Fed could go even farther.

“We certainly think the Fed would be prepared to do more,” said Michael Gapen, head of U.S. Economics at Barclay’s in an interview with CNBC. “There’s a lot of volatility in markets, and the Fed is very concerned about market functioning and keeping liquidity free flowing and credit available.”

In addition to the plummeting mortgage interest, an already slow real estate market will be impacted by a lack of Chinese buyers.

“China has been the most important source of foreign demand for real estate,” Lawrence Yun, chief economist at the National Association of Realtors®(NAR) told Realtor.com. “The upper-end market can expect to be softer as a result.”

That’s because wealthy Chinese buyers often purchase luxury properties in places like California and New York.

According to NAR’s most recent data about foreign buyers, Chinese buyers spent $13.4 billion on U.S. homes between April 2018 and May 2019 – which is a 56% drop from the previous 12-month span.

While some of that drop can be attributed to more strict rules by the Chinese government on international spending combined with tougher immigration rules in the U.S., even those Chinese buyers who would still come to America to buy real estate have been put on ice based on travel restrictions, flight cancellations and required quarantines and self-isolations.

This takes away the incentive to buy real estate because when a potential buyer can see the property remains unknown.

THE MORTGAGE INTEREST-FREE FALL

U.S. Mortgage rates hit an all-time low in early March, with the average rate of the 30-year fixed-rate mortgage dropping to a staggering 3.29% according to Freddie Mac, eclipsing the previous low set back in 2012. Just a year ago, though, mortgage rates were hovering in the mid-4% range after almost touching 5% at the end of 2018.

However, some experts, like Jay Farner, CEO of Quicken Loans, sees this as an opportunity for current homeowners to refinance their mortgages and pay down the loan even faster.

“So, 30-year mortgage rates have dropped quite a bit to the low-to-mid three percent range on a 30-year fixed-rate, and we’re now below three percent on a 15-year fixed,” Farner told MarketWatch “ So, I’d say for the vast majority of Americans, they’re now in a position where they can save money by refinancing. So, they should be doing something.

“THE ONE POTENTIAL CONUNDRUM FOR LOWER MORTGAGE INTEREST RATES IS THAT IT COULD CREATE A SLIPPERY SLOPE WHERE MORE BUYERS ENTER THE MARKET TRYING TO GET A GOOD DEAL, ALLOWING SELLERS TO JACK UP THEIR PRICES.”

“Interestingly, one of the things we’re talking a lot about is people moving from a 30-year to a lower term, a 20-year or 15-year, because rates are so low, they can get a payment today at a 15-year that is similar to a payment they would have made four or five years ago on 30-year when rates were in the fives, yet they could pay their home off in 15 years for far less interest.”

Farner added though that we shouldn’t expect to see the 30-year fixed rate mortgage to drop below three percent. Uncertainty creates volatility in the market, which impacts interest rates. However, once there is certainty, either positively or negatively regarding coronavirus, it would cause interest rates to be on the rise again.

“Even if they come out and say maybe the coronavirus will be a little bit worse than we thought that would bring certainty. If it makes sense, you can save money, you got to lock your interest rates. Take advantage of the savings. And if I were a betting man, I’d say there’s a higher probability rates will rise in the (near future).”

The one potential conundrum for lower mortgage interest rates is that it could create a slippery slope where more buyers enter the market trying to get a good deal, allowing sellers to jack up their prices at a time when home prices are increasing exponentially even without the impact of a global pandemic.

Getting back to China, where Covid-19 originated, considering China has the World’s second-largest economy and it also has a worldwide supply chain. Limits on that supply chain impact businesses around the world. This can slow development even further as developers will need to wait longer than usual to get the supplies necessary to build.

The last time a health risk had this kind of impact on the global economy was in 2003 during the outbreak of severe acute respiratory syndrome, or SARS. Mortgage interest rates also dipped during that outbreak, but the impact on real estate was minimal, if at all.

That’s because Chinese investors weren’t as interested in the U.S. market at the time. Considering how much Chinese interest there is now, it leaves a lot of uncertainty as the Covid-19 virus spreads.

LUXURY HOMES COULD SEE A BOOST LONG-TERM

Wealthy buyers from China seem to be more interested in U.S. properties after negative stories emerge from their own country.

For example, there was a spike in Chinese purchases of property in the U.S. after the 2019 anti-government protests in Hong Kong.

Covid-19 could bring the same rush from China to the U.S. market as these Chinese buyers see the U.S. as a safer option than at home because of the civil unrest.

“[Chinese] people who are wealthy may feel tired of the perception of China as being a third-world country,” Yun said. “They want to park their money in a first-class world economy, which is Australia, Canada, and the U.S. Hence, we may see greater demand from Chinese, wealthy households.”

CLOSING DELAYS

While real estate is not usually subject to volatile swings in the stock market, which has been impacted by the spread of Covid-19 and the uncertainty of its real impact on public health in America, the reality is, it’s hard, and potentially impossible to close a deal on a real estate transaction of travel restrictions are put in place.

Whether a sale is contingent upon the buyer seeing the property before signing the dotted line, or due diligence is required before closing an ongoing deal, the impact of Covid-19 could cause a delay in closing, or potentially even put a kibosh on the deal in total.

Travel restrictions that are being put in place, as well as recommendations of self-isolation and the general fear of the unknown could have people sheltering themselves in their current homes and not venturing out until necessary. These kinds of actions, even if done in the minority, could create a real estate transaction slowdown, albeit temporarily.

On the commercial real estate market, transactions had started slowing long before Covid-19 was a thing. According to Bisnow, in New York City, there was a 31 percent drop in the sale of investment-grade real estate from 2018 to 2019.

“The market was soft before the news of the virus hit,” Compass Vice Chair and commercial investment sales broker Adelaide Polsinelli wrote in an email to Bisnow. “If you aren’t afraid to do business in real estate in New York City, you aren’t afraid of coronavirus.”

She added that there is a positive outcome that is running parallel to the slowdown, because some investors are seeing the drop off in competition for real estate as a golden opportunity to lock down a deal.

“This is the perfect storm for buyers,” she said. “Competition has slowed down, sellers are nervous, interest rates are low and opportunities are increasing.”



POST WRITTEN BY

NATIONAL ASSOCIATION OF REALTORS

Coronavirus: Resources for Property Owners

The following resources provide property owners with assistance during the COVID-19 crisis.

American Land Title Association (ALTA) has provided the following resources:

Bank Regulators have also instructed banks and servicers to be proactive in extending help to homeowners:

Banks have posted their own policies and ways for consumers to contact them for assistance:

Servicers (those who collect the payments for investors/banks and interact with consumers) are providing information for how homebuyers can reach out for assistance:

Mortgage Insurers are also providing information on how servicers can help consumers:

Consumer Financial Protection Bureau (CFPB)

The CFPB has a number of resources(link is external) focused on financial protection, both short and long term, such as paying bills, income loss, and scam targeting.  Resources include contacts for housing and credit counselors, debt collectors, and state unemployment services.

Department of Labor (DOL)

DOL has provided resources for employers and workers(link is external) in responding to COVID-19 and including the impact on wages and hours worked and protected leave (these resources are primarily for businesses and employers).

Environmental Protection Agency (EPA)

Americans can continue to use and drink water from their tap as usual. EPA has provided important information about COVID-19(link is external) as it relates to drinking water and wastewater to provide clarity to the public. The COVID-19 virus has not been detected in drinking-water supplies. Based on current evidence, the risk to water supplies is low.

Federal Housing Administration (FHA)

Immediate Foreclosure and Evictions Relief for Homeowners for the Next 60 Days

The U.S. Department of Housing and Urban Development (HUD) has authorized the FHA to implement an immediate foreclosure and eviction moratorium(link is external) for single family homeowners with FHA-insured mortgages for the next 60 days. Read the full press release(link is external).

FHA Q&A Form

FHA continues to run single family business operations. FHA has created a Q&A form available on their website to keep interested parties updated on their procedures during the COVID-19 crisis. Please refer to https://www.hud.gov/program_offices/housing/sfh(link is external)  for the most current information.

Federal Housing Finance Agency (FHFA)

FHFA has instructed Fannie Mae, Freddie Mac and their servicers to be proactive in providing assistance to homeowners including forbearance. In addition, FHFA imposed a moratorium on eviction and foreclosures on mortgages backed by the GSEs:

Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac have issued similar guidance:

  • Homeowners who are adversely impacted by this national emergency may request mortgage assistance by contacting their mortgage servicer
  • Foreclosure sales and evictions of borrowers are suspended for 60 days
  • Homeowners impacted by this national emergency are eligible for a forbearance plan to reduce or suspend their mortgage payments for up to 12 months
  • Credit bureau reporting of past due payments of borrowers in a forbearance plan as a result of hardships attributable to this national emergency is suspended
  • Homeowners in a forbearance plan will not incur late fees
  • After forbearance, a servicer must work with the borrower on a permanent plan to help maintain or reduce monthly payment amounts as necessary, including a loan modification

Fannie and Freddie have also created pages with additional information:

Internal Revenue Service (IRS)

The IRS has also created a Coronavirus Tax Relief section(link is external) on their website with updated information for taxpayers and businesses (these resources are for businesses and not specifically for consumers).

Rural Development — U.S. Department of Agriculture (RD)

  • RD will continue to provide loans and grants to rural communities across all of their programs.
  • ReConnect applications will continue to be accepted with a March 31st deadline, and RD will then begin the review and award process.
  • RD has granted authority to lenders that participate in their Single-Family Housing Guaranteed program so that these lenders can work with borrowers to ensure that homeowners will stay in their houses if they are having difficulty making payments.
  • RD will issue guidance to their Single-Family Housing Direct borrowers to ensure they can also seek payment assistance if needed.

Small Business Administration (SBA)

The SBA has provided guidance and resources for businesses and employers(link is external) to respond to COVID-19, including information regarding the economic injury disaster loans, local assistance, and SBA products & resources (these resources are for businesses and not for consumers specifically).

SBA Economic Injury Disaster Loans (EIDL)

The EIDL program supports small businesses facing temporary loss of revenue as well as working capital. They can be used to pay debts, including payroll, accounts payable, and other bills that cannot be paid due to a disaster. View the program summary and SBA Response to COVID-19(link is external) (PDF: 117 KB).

Student Debt

  • Servicers are sharing information(link is external) how borrowers can seek remedies.
  • The Administration has indicated that interest on student debt will be suspended effective immediately. We are waiting more details on this plan.

VA Home Loan Program

The Department of Veterans Affairs (VA) is providing information to keep Veterans and stakeholders safe(link is external) while continuing the mission of the VA Home Loan Program:



How coronavirus is impacting the housing market

POST WRITTEN BY

CURBED | JEFF ANDREWS

Stocks are tanking as the virus spreads. Will housing follow?

Getty Images/iStockphoto

 

Few homes look their best in the dirty grays of late winter, which is, in part, why homebuying season coincides with the arrival of spring. This year, however, the crocuses that can make a house look that much nicer are showing up alongside the less reassuring news of a virus circling the globe.

The rapid spread of COVID-19—more commonly referred to as coronavirus or novel coronavirus—has claimed more than 3,000 lives. Conferences and sporting events are being canceled, Americans are stockpiling groceries in preparation for the worst, and the stock market has dropped almost 10 percent since February 24.

If you’re in the market for a house, all this uncertainty might have you worried about the housing market. Will it suffer a swoon similar to Wall Street? There are a few ways the virus could effect the housing market that you should be aware of—but before we get into the details, you can breath a sigh of relief, because a housing catastrophe on the scale of the 2008 financial crisis is almost certainly not going to happen.

There are over 300 cases currently confirmed in the United States. The countries where the virus has hit the hardest—namely China, where nearly 80,000 cases have been documented—are global manufacturing hubs that corporations use as suppliers. China’s economy has been brought to a standstill as a result of the virus, and if that continues it could lead to further economic fallout.

However, historically low inventory, a humming economy, and rock-bottom mortgage rates are setting the stage for a highly competitive homebuying season.

Coronavirus already pushing mortgage rates lower

The current dip in the stock market is being caused by the possibility that the new coronavirus will disrupt global supply lines, damage corporate earnings, and thus make companies less valuable. But it will take some time for all of that to shake out and to see what the actual effect of the outbreak is on business.

But what matters more for housing is bonds, the price of which affect mortgage rates. When investors start thinking the stock market is too risky—like right now—they sell their stocks and buy bonds. The increased demand pushes the price of bonds higher. The higher the price of bonds, the lower the interest payment—called the yield—is relative to the price. When bond yields are lower, mortgage rates are lower, too.

This is why mortgage rates have dropped as a result of coronavirus. Rates are down to around 3.5 percent, and the Federal Reserve announced earlier this week that it was cutting its target interest rate by a half percentage point, which typically would cause mortgage rates to fall even further.

However, mortgage rates are already at three-year lows, and it’s an open question how low mortgage lenders are willing to go, regardless of whether the Federal Reserve cuts its target rate.

Where the housing market currently stands

The housing market is, in a word, tight. Consider Seattle, where home prices have risen dramatically as it has become one of the country’s leading tech hubs. And while the nation as a whole is suffering from housing shortages, Seattle’s available homes for sale dropped a dramatic 27.6 percent year-over-year in January.

The housing market in other cities isn’t much better off: supply is at near record lows nationwide, and demand is near an all-time high. This combination means home prices are also near all-time highs in most cities as many potential buyers are bidding on a limited supply of homes for sale.

At the end of 2019, the number of houses for sale dropped even lower, particularly on the West Coast. Compared to a year ago, some cities saw double-digit percentage decreases in available homes for sale, although that is partly a function of there having been a supply spike in the second half of 2019, so the decrease looks more stark than it otherwise would.

But the supply spike was short lived. “It’s actually back down near record lows in terms of the level of inventory for many markets and the country as a whole,” says Jeff Tucker, an economist with Zillow.

On the demand side, key indicators suggest there will be a lot of buyers in the market. Low unemployment, solid wage growth, and low mortgage rates are all signals of high demand. Todd Teta of ATTOM Data Solutions, a real estate data provider, says they’ve seen unusually high web traffic to real estate portals like Zillow and Redfin.

“We look at the portals, and traffic was way up relative to seasonality than what you saw in January of 2019,” he says. “All those indicators are looking pretty strong.”

It’s hard to forget the recent history, but while the 2008 financial crisis saw both the housing and stock markets drop in tandem, this was an aberration in so many ways; the housing market crash was ultimately the cause of the stock market crash. Typically the housing market isn’t tied to swings in the stock market, because people don’t buy houses purely as an investment. Housing is a basic need, and the decision to buy one is usually prompted by entering a new stage of life.

A newly married couple is moving in together and is buying a house. A couple is having a kid and needs more space to accommodate the baby so they buy bigger house. Empty nesters have more house than they need after their kids go to college, so they downgrade to a smaller house.

A stock market correction doesn’t change these circumstances for people. Even in full-blown recessions, the housing market is incredibly durable. In some previous recessions home prices have actually gone up.

Are homebuilder supply lines being disrupted by coronavirus?

The short answer is yes. Nearly a third of home building material inputs come from China, according to the National Association of Home Builders, not to mention more finished products like bathtubs, sinks, appliances, and more.

This could delay home construction at a time when it has finally picked back up. Since the financial crisis, home building has struggled to keep pace with demand because of the cost of construction, lack of available land, and a construction labor shortage.

However, home builder confidence has skyrocketed in recent months, according to the NAHB. This signals that builders are more inclined to start construction on homes. To wit, new home sales—largely dependent on how many homes are built—have spiked dramatically in recent months, as have construction starts.

But if supply lines are disrupted, it could dampen the pace of home building and contribute to inventory shortages.

“Low interest rates help support demand, and consumer confidence readings in the coming months will be key, but the virus does heighten some of the longer-term challenges on the supply side in terms of housing supply,” says Robert Dietz, an economist with NAHB.

So how should I approach things heading into the spring homebuying season?

The conditions are set for the spring being an incredibly competitive housing market. Inventory is low, demand is high, and mortgage rates are low. If you already own a home, you might consider refinancing while rates are this low; other homeowners are already jumping at the chance.

However, it’s worth taking recent housing market history into consideration. Two years ago, similar conditions existed in the market and one realtor told Curbed that we were entering “the most competitive housing market in recorded history.”

That market didn’t materialize. Instead, home prices hit an affordability ceiling that kept many buyers out of the market. Eager sellers who listed their homes in hopes of taking advantage of the favorable conditions saw their homes linger on the market, leading to an inventory pile up not seen since the 2008 housing crash, particularly on the West Coast.

Home prices are still very high. If the same conditions existed and home prices were a little undervalued, it would likely create rapid home-price appreciation. But with prices already maxed out, it remains to be seen whether current market conditions cause prices to break even higher or hit a ceiling.

The wild card in the housing market is coronavirus. If its impact is prolonged and induces even a minor recession, it could put a damper on demand—which would actually be welcome for buyers in particularly competitive markets. Still, don’t expect home prices to drop. It would likely just slow down the pace at which they are rising.



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