The residential real estate market suffered a great deal from the COVID-19 crisis last spring. And it doesn’t appear that things will be returning to some form of “normal” any time soon. So, how has the pandemic affected real estate?
Fewer sellers were willing to let strangers enter their homes by listing properties, and fewer buyers were looking for homes due to stay-at-home orders and health concerns during the pandemic.
However, home sales made a comeback in the summer despite the downturn early last spring. Simultaneously, there was an economic crisis resulting in uncertainty and job losses due to the health crisis.
There are fresh memories of the 2007-09 housing crisis, and the unemployment rate has reached historic highs resulting in homeowners being unable to pay their mortgages. Since homes are now being used as recreation facilities, schools, offices, and restaurants, many households are reviewing their housing needs.
What Happened And Why?
In April and May 2020, home sales dropped to their lowest level since the financial and housing crisis that started in 2007. As a result of the pandemic, many homeowners are not ready to sell. There was a 25% increase from the previous year in the number of delisted homes between early March and early April last year.
There was also a 40% decrease in new listings in April 2020 compared to the same period the previous year. Due to an already thin inventory and lack of new listings, there have been new lows in housing supply. The number of homes for sale dropped by 17% in April last year compared to the same period the previous year.
Home-buying activity by buyers also witnessed a drop. In the U.S., there was a 40% decrease in home showings per listing in April 2020 compared to the same time in 2019. Queries for agents offer made, online search activity, and other measures of housing demand also dropped sharply in April 2020.
Naturally, price drops would accompany a decline in new home sales demand. However, the coronavirus effect on housing market prices was not significant. The combination of historically low mortgage rates and low supply led to surprisingly steady prices throughout April and May 2020.
Local conditions have a significant impact on residential real estate activity. While the coronavirus impact on housing market in some hard-hit areas resulted in steep drops, there was a significant decline in real estate activity in every central metro area last spring.
In April 2020, pending home sales in New York City declined up to 58% compared to the previous year. By early May 2020, most real estate activity was considered nonessential in Detroit and witnessed a 74% decline in pending sales. U.S. metro areas, by comparison, were hit by an average decline of 33%.
Real Estate Demand Recovers, Supply Remains Low
Real estate activity witnessed improvements late last spring despite the large drops in home sales due to the coronavirus real estate impact. The improvements shot to pre-pandemic levels by summer 2020. By the end of May last year, potential buyers increased their search for housing and purchase activity.
Pending sales that were down more than 30% in April increased by almost 30% by August 2020 during the same period. By May last year, home showings per listing were up from their lows in March and April and had risen above pre-pandemic levels aided by increased socially distant and online viewings.
So, how will covid 19 affect the housing market? The same pace of recovery was not evident in the housing supply. Despite improvement from April 2020 lows, new listings were slightly more than 2019 through August last year. Consequently, there was a steady decline in inventory.
Compared to August 2019, there were less than two-thirds of the amount of inventory during the same period last year. Homeowners are being kept in place by the overall economic instability and the low purchasing power to buy homes. At the same time, the coronavirus effect on the housing market continues to keep sellers from the market.
Increased economic uncertainty and heightened unemployment could still threaten the housing market well into 2021 despite improvement in the economy. Many were locked out of homeownership for several years due to tighter lending practices and foreclosures during the 2007-09 financial crisis.
More than two-thirds of senior loan officers reported tighter lending standards during the second quarter after a slight rise in the first quarter. There were missed mortgage and rent payments after many households reported financial constraints.
Foreclosure rates and delinquency rates have been kept low due to moratoriums on foreclosure proceedings and mortgage forbearance programs. But, as these programs near their expiration, things could get more difficult for homeowners.
Longer-Term Housing Outlook
Due to the abrupt economic recession and increased losses in jobs, the housing market outlook is not stable even though the current recession wasn’t a result of the housing crisis. However, there are signs of normalcy returning. There is improvement in buying conditions for houses since they are back to where they previously were in 2019.
The primary reasons for many households are low interest rates and the availability of good buys. In 2019, “housing as a good investment” and “prosperity” were the main reasons for more households.
Continuing commentary on the housing market and coronavirus show how the future of home and work will be different. Workers may move farther away from the office or place less value on a shorter commute if they can work from home.
Additionally, families are replacing home amenities such as swing sets and swimming pools with community amenities like stadiums and parks. This change places less value on the location of a house and more on specific characteristics. It is also creating some confusion for sellers trying to determine how best to price their home as they enter the market.
It isn’t known how much these shifts will reverse or be permanent. For instance, when in-person networking and leisure activities are scarce, it may be more efficient to work from home during a pandemic. The most significant asset for many households that’s also a long-term opportunity is housing.
So, the immediate economic crisis may keep prospective buyers on the sidelines for a while longer, even if there was a permanent change in preference. It may be challenging to act on potential moves due to sustained increases in home prices and limited inventory supply.