As spring — the most popular time for homes to be sold on the market — approaches, shelter-in-place restrictions remain in place on both federal and state levels, creating numerous challenges for those looking to transact. Unfortunately, the unanticipated outbreak of COVID-19 has had an unprecedented impact on the real estate market. Although the numbers and data are still being collected, there are a few trends that have been prevalent since the pandemic hit the states in early 2020. This article breaks down the three prominent impacts on the industry.
Trend #1 – Supply and Demand Declined
According to recent reports, web traffic on online listing services has seen a drastic decline. In King County, home to Seattle and the first major outbreak of COVID-19 in the US, the number of new listings experienced a decline of over 50% on a weekly basis in early April; also, in the East Bay Markets, home listings were down nearly 70% since the start of shelter-in-place orders. A similar trend is being seen across the country, all the way to New York City, where listings dropped almost 80%.
Not only has supply declined, but demand has as well. As people face economic uncertainty and unemployment continues to climb, many of those interested in transacting in 2020 have put their plans on hold to see how the economy and how their local community will recover from the pandemic. According to a report by CoreLogic, home purchase applications, which started strong in most urban areas in January and February, started to slow down. At the end of March, home purchase applications in major metropolitan areas suffered a drastic impact – In Los Angeles, applications dropped by 14%; in Miami, applications dropped by 12%; and in New York, applications dropped by 8%.
Trend #2 – People Are Seeking Homes in Smaller Cities
New York City had one of the most severe responses to COVID-19, and with over 178,000 cases, over 44,000 hospitalized, and over 140,000 deaths, many people are seeking homes away from the crowded city. In fact, this is true of many metropolitan areas as a result of growing desire to get further away from the harms of the pandemic and reduce potential exposure. As a result, demand for homes in more rural areas has been positively impacted. Last month, Redfin CEO, Glen Kelman, stated “We have seen that people are more interested in that house at the foot of the mountains by the lake… Rural demand is much stronger right now than urban demand, and that’s a flip from where it’s been for the longest time, where everybody wanted to live in the city. We’ll see how it comes back, but there seems to be a profound, psychological change among consumers who are looking for houses.”
Although the future of this trend is uncertain, consumers can expect it to remain stable for a while since many companies have converted their business models to allow employees to work from home more often. The ability to conduct all business matters remotely is making the draw of moving to expensive, large cities less enticing.
Trend #3 – Fewer Buyers as a Result of Less Access to Lending
In March 2020, the federal reserve cut rates to zero. They also cut the rate of emergency lending to 0.25% and lengthened the term of such loans to 90 days. As a result of exceptionally low interest rates, consumers flocked to lenders for new purchases and refinance opportunities. However, challenges began to arise in the United States as COVID-19 shut down the economy and put people out of work. As a result, the CARES act was passed, providing mortgage relief to those who qualified: For mortgages that come through Fannie Mae, Freddie Mac, or the U.S. Department of Veteran’s Affair (VA), there are no foreclosures permitted for sixty days after March 18, 2020, and anyone experiencing financial hardship due to the COVID-19 pandemic can request a mortgage forbearance for 180 days.
These variables have resulted in shrinking the mortgage credit box – that is, lenders have tightened their borrower criteria and limited the number of people who qualify for new loans or refinance options. For example, JPMorgan Chase reported that they started requiring borrowers to have at least a 700-credit score and that they put down a 20 percent down payment for new homes. The restrictive lending terms have decreased the number of individuals who could qualify for the low interest rates and move forward with a home transaction during the pandemic.
The Future of Real Estate
Every market has responded slightly differently to the pandemic – some cities have been hit harder while other rural cities are experiencing an increase in their local population. ATTOM Data Solutions chief product officer, Todd Teta, concluded: “It’s too early to tell how much effect the coronavirus will have on the different housing markets around the country, but the impact is likely to be significant from region to region and country to country…From [our] analysis, it looks like the Northeast is more at risk than other areas. As we head into the spring home-buying season, the next few months will reveal how severe the impact will be.”
In the meantime, sellers, buyers, and agents will need to remain aware of the ongoing changes in the local governments and adopt new plans according to the restrictions that are being put in place. New avenues for sales, whether it be online auctions or buyer-viewing contingencies added to purchase agreements, will need to be explored to provide resources for those seeking an opportunity to transact in the next twelve months. It can be anticipated that home viewing will remain limited, but the economic uncertainty related to lending and businesses resuming will impact the future recovery of markets around the world.
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