How is the Coronavirus affecting Real Estate
As Coronavirus fears mount, industries across the world are already feeling the pain. On March 9, 2020, the dow had the most significant drop in ten years. This tells me that there is a good chance that the real estate will be affected in some way. The question remains, how?
Coronavirus and Panic
Breathing masks are being sold on-line up to twelve dollars per mask, grocery stores are limiting how many cases of water one can purchase, cruise lines are trembling, and it keeps escalating. CNN wrote an article about toilet paper and hand sanitizer. That alone should give you an idea about the sense of panic many people are feeling. Perhaps panicking gives us a sense of control. We can control how much water and toilet paper we buy. However, we can’t control the coronavirus. So will this wildcard affect the real estate market?
The Real Estate Market Today
With national inventories being low and the United States, in general, experiencing a housing shortage, the housing market is tight. Let’s take a look at Seattle, for example. In Seattle, home prices have skyrocketed as it has become a leading tech hub in the U.S. Available home inventories in the Emerald City plummeted 27.6% in January.
Near-record inventory lows throughout various cities around the United States have elevated demand to an all-time high, driving real estate prices up around the country as prospective buyers compete against each other.
Instability of the Dow Jones and Real Estate
Usually, the volatile swings of the stock market aren’t tied to the housing market because the general public utilizes housing as a fundamental need and not solely for investment purposes like a stock. People need shelter for their families despite the trending ebbs and flows of the stock market. The current instability of the stock market should have little impact on the housing market, at least in the short term. But the coronavirus still offers a lot of unnerving variables that remain to be seen. So how can the coronavirus affect the housing market?
The Coronavirus and Chinese Supply Lines
China’s economy has suffered much as a result of the coronavirus. You may say the Chinese economy has been brought to a standstill. If uncertainty continues or the coronavirus gives us a scary surprise, it could lead to further Chinese economic devastation. It is important to understand, according to the National Association of Home Builders, nearly a third of home building material inputs originate from China, this does not include more finished products like sinks, bathtubs, appliances, and more. So, it isn’t a stretch to say that the damage to the Chinese economy by the coronavirus could affect American home builders. Though as things stand now, I don’t see a real estate market disruption anywhere near 2008 levels if at all. I suppose that could be our silver lining in the coronavirus epidemic or possibly soon to be pandemic.
Coronavirus comes at a time of strong builder confidence
For the last 12 years, home builders have found it challenging to keep pace and meet demand due to material costs, labor shortages, and available land on which to build.
However, strong confidence in home builders, according to the NAHB, may persuade home builders to start building, perhaps minimizing supply shortages to some degree. The coronavirus appears at this most inopportune time for home builders. High construction material costs and availability may make it difficult for home builders to keep pace with demand. Much of the projected impact remains to be seen over the next number of months. The more significant the impact of the coronavirus, the length of epidemic/pandemic, the more effect it will have on the supply chain, hence affecting the real estate market.
The coronavirus, pushing mortgage rates even lower
Bond yields and mortgage rates fluctuate in tandem. When bond yields drop, so do mortgage rates. As investors start finding themselves on shaky ground in the stock market like we are experiencing now, they dump their stocks and buy bonds, leading to elevated bond prices, causing lower interest rates due to the coronavirus. The initial knee jerk reactions by investors can obscure future predictions and outcomes. The bottom line is that it will take a lot more time for all of this to play out. Then we can have a more clear picture and understanding regarding the long term effects, results, and consequences of the coronavirus. Interest rates are around 3.5 percent. The Federal Reserve announced at the beginning of the week that it plans to cut its target interest rate by 0.5%, adding to a cocktail that fuels lower interest rates. The real question is, how much lower are the mortgage lenders themselves willing to go, despite the Federal Reserve cutting it’s target rates?
What to do if you’re Buying a Home this Spring
We should have all of the ingredients this Spring for a highly competitive real estate market. The lower interest rates and supply shortages should ensure that. With that said, I would recommend being patient taking the time to find a good deal. Yes, buyers should be in a frenzy in certain parts of the country, but you should not react and let that cloud your judgment. Remember, real estate prices are high, and how much higher they will go or stay remains to be seen. Don’t be the one left holding the bag when the real estate market decides to turn the other way. I will add that this may be a great time to refinance your home taking advantage of these very low rates. No one knows how long this opportunity will exist, so it may be a good idea to speak with a mortgage broker and get your rate locked.
The coronavirus continues to be the wild card across global industries, real estate included. The prolonged impact could produce significant instability across the world. But as of now, I don’t expect home prices to go down anytime soon. Only after containment of the coronavirus, we will be able to know the full financial devastation the coronavirus reeked upon the world.
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About the Author
Benjamin Ross is a real estate expert, investor, writer, and professional who serves his clients by writing unique content to incorporate into their blog, marketing strategy, or website. Benjamin offers his clients real estate content written by an experienced industry professional and top writer who has been quoted by Forbes, Us, and World News, Realtor.com, and Yahoo Finance, to name a few. Many writers are efficient and skilled, but few have any actual real estate experience or an intimate understanding of the industry. Benjamin can offer you this unique blend to further advance your real estate business. Contact him today!
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