Stock markets tanking, major organizations shutting down, no live professional sports, fed cutting interest rates to nearly 0-0.25%. Is the world shutting down? We have NEVER seen anything like this and it is hurting the US Economy… Very Fast. So thinking back to the last recession, what is going on in the housing market? Will prices drop again like they did in 2008? Heres How Coronavirus will Impact NC Real Estate.
Throughout the United States, Housing Supply is at an All Time Low.
There are not enough properties on the market to meet the demand of home buyers, specifically in the lower price range where many first time home buyers are looking for new beginnings and a place to call home. With the low amount of inventory and increasing buyer demand, we have seen prices at an all time high.
Spring is approaching and typically as the weather heats up, so does the housing market.
Although, this year is different and Coronavirus has changed the way for 2020… Have we reached the peak for prices and How Coronavirus will impact NC Real Estate?
Coronavirus is Going To…
- Coronavirus will wipe out a group of buyers – Those who are taking a “wait and see” approach to track house prices and hopefully capitalize when prices have dropped. I heard a buy & hold investor friend of mine talking at the gym and said, “No more buying until 2021!” Another group of buyers will be wiped out if they have been facing uncertainty about coronavirus affecting their pay or costing them their job. Bottom line is, A large group of buyers will be temporarily taken out of the market which could cause a spike of supply and a pull back in prices. According to the NAR, 1 in 6 agents stated that buyer interest has declined.
- Concern Sellers – To sell your house on the market you will have numerous showings and open houses which brokers bring in other agents and people to look at your home. Large gatherings are being prohibited and sellers are not wanting to show their home forcing agents to adapt to virtual property tours and video calls. Sellers may hold off on listing their house until this has passed which will not help the already low supply. My prediction is that the number of open houses will continue to drop and will be seeing hand sanitizer at the sign in sheet.
- Slow Down The Pace of Rising Home Prices – Housing affordability is an ongoing issue where we are in a strong sellers market due to the lack of supply, high demand and low mortgage rates. I believe that home prices will hit an affordability ceiling which may keep the majority of buyers on the sidelines. Sellers will be eager to capitalize on favorable market conditions (High Prices) and will see their house sit on the market longer. This will open up supply and slow down the pace of rising home prices. We have already seen supply in The Triad nearly double since the beginning of February. I am not anticipating on home prices to drop like we saw in 2008, I believe that the real estate market is stable and will actually benefit buyers when we see a slow down in the pace of rising prices.
- Impact Home Builders Supply Chain – Prior to the Coronavirus outbreak, Home Builder Confidence was at the highest we had seen in 20 years. Although, since the outbreak of the virus builder confidence has began to fall which is also not helping the already slim supply of housing. According to the National Association of Home Builders, roughly 1/3 of home building materials come from China. Builder confidence remains solid as inventory remains low, although sales expectations for the next six months dropped four points. Low interest rates and lack of inventory creates a great opportunity for new single family home builders.
- Keep Mortgage Rates Low – When investors start to see the stock market crashing, like right now, they pull their money out and buy bonds. The increase demand in bonds pushes the price higher. The higher the price, the lower the interest payment which is referred to as the yield which is relative to the price. When bond yields are lower, mortgage rates are lower as well so we will continue to see even lower mortgage rates. Although, the record level low mortgage rates might not be enough to lure buyers into the market with
Stocks are Crashing…
While stocks are crashing and corporations are shutting down or forcing employees to work from home, there will be a wave of distressed home owners. Home owners may lose their source of income which was contributing to paying their mortgage or rent thus forcing them to sell. An important area to keep an eye on will be unemployment rates and how businesses are dealing with their employees. (Compensating while absent from work)
NAR Chief Economist, Lawrence Yun, stated that, “During the last recession, real estate was on wobbly ground with loose lending and too much supply. Today there is no subprime lending and too little supply. The real estate market will hold on much better.”
In 2008, the housing market caused the stock market to crash. This drove housing prices to the ground and opened up a wave of supply.
This time, The Housing Market is durable, supply is lean and purchasing a house is not just an investment, its a place to call home. While stocks are falling, investors will pull their money out and look for an alternative, safer investment like real estate. Coronavirus will impact NC real estate in various ways, although dont expect to see prices dropping like they did in 2008.
There will always be a need for a roof over your head where both buyers / sellers will be actively looking.
This too shall pass with time.