In only several months, the COVID-19 outbreak has impacted most aspects of the 21st-century modern-day American life. Many workers have had to endure mandated furloughs, while others try valiantly to work from home. Of course, there are those frontline workers – who deserve more than their salaries and our collective gratitude – working harder than ever to help anyone who may contract COVID-19.
Many workers have lost their jobs due to the coronavirus pandemic, with the United States Labor Department reporting more than 30 million jobs lost. New, unprecedented levels of unemployment claims began to spook those experts who monitor the U.S. economy. And if things weren’t challenging enough, schools went virtual – depending almost exclusively on technology – to help protect children from the potential dangers of the highly infectious coronavirus.
Fear of the unknown, plus assorted misinformation and an unfortunate, disjointed government effort across the United States, caused pointless panic, which ultimately led to hoarding everyday items like toilet paper and hand sanitizer.
In response to the appearance of several economic indicators pointing dangerously in the wrong direction, the Federal Reserve Bank (the ‘Fed’) cut interest rates – as one would expect with an economy teetering close to the edge of a full-blown recession, and in need of an injection of cheap capital.
The Fed’s decision to drop key rate indicators then caused mortgage rates to fall to all-time lows.
In the face of a pandemic, many prudent homebuyers began to consider how these historically low interest rates may be a silver lining opportunity to buy a home at interest rates that may never be available again.
Would it be wise to purchase real estate during this economic and psychological uncertainty, or would it be smarter to see how the economy fares and hope interest rates remain low during this ‘wait and see’ approach?
Significant disruptions and slumps in the overall economy generally hit the real estate market square between the eyes; however, the COVID-19 pandemic, while initially slowing the pace of real estate transactions, has revealed recent metrics that appear to be bucking conventional wisdom and historical expectations.
Time will be the only way to know if this worldwide pandemic will lead to an increase in the homeownership rate of United States residents.
The coronavirus’s only certainty is how little epidemiologists and medical experts know about how COVID-19 behaves, which makes it remarkably challenging to design a pharmaceutical compound that could be developed into a viable vaccine.
Current Advantages of Buying a Home During COVID-19
According to the DHS, Real Estate Services Are an Essential Service.
In the United States, Real Estate Services have been declared an essential service by the United States Department of Homeland Security (DHS). However, it is noted that individual state governments have the authority to overrule Homeland Security’s federal-level guidance, and in many instances, states have decidedly broken from this federal guidance.
For example, New York state, particularly hard hit at the beginning of the outbreak, temporarily (and wisely) prohibited real estate viewings in person, whereas Florida loosened restrictions to allow for closings to occur curbside.
Fortunately, the ever-increasing use of technology to manage and close real estate transactions over the past few decades has helped ease the transition to remote viewings, remote negotiations, and remote closings mandated due to the coronavirus outbreak.
Mortgage Rates are Historically Low.
It was during March of 2020 that mortgage interest rates tumbled to historic lows. Basic economics (and common sense) reveals that – in typical market conditions, decreasing rates generally translate to a boost in the number of home sales transactions. This is because –
- The lower interest rates typically open up opportunities for more buyers, who were once outpriced. The number of potential buyers simply grows.
- Active buyers recognize the opportunity to own real estate at more affordable interest rates and are even more motivated to make a valid offer to purchase.
The keyword in the long-standing economic model noted-above is typical. There is nothing typical about the real estate market (or anything else for that matter!) during the first, second, and now the beginning of the third quarter of 2020.
Consider the following remarkable, if not incongruent and unprecedented factors impacting the global and US economy, and thus, the real estate market –
- Various global travel restrictions due to a global emergency. Foreign buyers are now required to buy sight unseen.
- An overall grip of consumer anxiety due to the economic and psychological uncertainty caused by the coronavirus.
- The stock market is behaving dangerously with wild swings that cause the stock market to halt trading as a protective measure. Some investors have decided to switch investments from an unstable stock market to a more stable real estate investment.
- Most individuals still maintain some uncertainty as to their future economic circumstances in terms of employment.
- The global economy is near chaotic levels.
- Mental health experts are warning that significant issues would result from the very necessary stay-at-home orders.
Some real estate professionals have even ventured to ask what seems to be an improbability – could interest rates continue to drop to even lower historic levels?
Learn to Buy a House Without an In-Person Visit
As the coronavirus began to infiltrate through each of the United States, some states prohibited open houses across the board for all real estate activity overnight. Essentially, these restrictions made it virtually (no pun intended) impossible to buy a home with the advantage of personally viewing and inspecting the home from the buyer’s perspective.
However, buying a home sight unseen is not a new concept to those who have been relocated for their careers or are members of one of the United States military branches. It is only recently that other individuals – who are not relocating or moving as a part of the military – that have begun to be open about buying a home without personally inspecting the property.
A survey of consumers by REALTOR.com during the first week of April 2020, revealed that about one in four (about 24%) of the respondents (with a total 1,300 respondents) said they would be willing to consider buying a home without visually inspecting it in-person.
It is noted that age tends to play a factor in who will have the necessary comfort level to buy a home without first inspecting it in person. As one would expect, it is easy for the younger buyers, who grew up with technology, to agree to buy a home without seeing it in-person. This is especially true if the buyers have personal knowledge about the general area and neighborhood in which the home they are buying is located.
However, as older buyers are more vulnerable to the devastating effects if they contract COVID-19, these older purchasers may find they prefer to purchase a home using oodles of technology, rather than taking an unnecessary risk of inspecting the property.
Buying without personally inspecting a property is most successfully accomplished when buyers choose to integrate data and information based on –
- The technological capabilities that allow buyers to take a virtual tour of the home they wish to purchase.
- The listing and neighborhood information that is available from the MLS and trusted real estate professionals.
- The viewing of a compilation of many high-quality listing photos that showcase and highlight the property’s interior and exterior features.
- A trusted real estate professional’s walk-through using one of the many available video chat apps.
- Drone videos of the neighborhood from a bird’s-eye view.
Patience is Key
The historically low-interest rates have prompted a whole new slew of homeowners to take advantage of these unheard-of low rates by refinancing their current mortgage to new historic interest levels.
This renewed refinancing boom – chock full of homeowners vying to lock in low monthly payments for a decade or two – has simply inundated lenders with an overwhelming amount of new business. As such, mortgage closings are likely to take longer due to the overworked staff in the lender’s underwriting and closing departments, and the challenging methods in place to close mortgages without compromising the health of the buyers, sellers, agents, and anyone else involved in the closing.
Additionally, required in-person homebuying services like –
- Home Inspections
- Pest Inspections
- Appraisals will also be delayed due to the coronavirus pandemic.
Buyer and Seller Motivations Have Shifted
Looking to buy a home during the coronavirus outbreak may offer some less obvious benefits.
Initially, the real estate market slowed down as COVID-19 spread across the world and domestically. Many people on the buying side of the transaction jumped to the sidelines as uncertainty gripped the nation and potentially took their job – reducing competition, at least at first.
Sellers, in need of selling, became more flexible as the number of potential buyers fell as the real estate market began to stumble in the early part of the second quarter of 2020.
And it is important to consider that many sellers and buyers dropped out of the real estate buying market at the same time, which in essence, had no impact on the relationship between supply and demand – the primary force that drives pricing in real estate and any free-market economy.
The Coronavirus Impact Each Real Estate Market Differently
Because most real estate information and data are given at the national level, it is difficult to recognize how an individual or regional real estate markets are performing from this national-level data. Clearly, a housing shortage in Dallas would have little impact on whether someone could find a rental property in Brooklyn, New York.
Let’s have a look around the country.
Susan Fleming, of Illustrated Properties Coastal Specialists, characterizes the current market situation in South Florida as follows – “I prefer not to use the word ‘storm’ during the hurricane season, but South Florida is experiencing the perfect storm of real estate activity right now.”
Susan, one of the rare Florida real estate professionals who is a native of the Sunshine state, adds that “interest rates are at all-time lows, causing many buyers to upsize, downsize, first-time home purchases, and/or make secondary home purchases. To make matters worse, there is a general migration from Miami-Dade and Broward counties to Palm Beach County for those buyers who have been outpriced.”
“People in the northern climates are worried about a second COVID wave and lockdown next Fall and Winter, purchasing second homes at higher rates than we have seen in years, as many have found that they can work remotely, preferably, in a warmer climate.”
Finally, she adds that “sales prices – year-over-year, as of June 2020 – are up 12%.
In San Diego, which is home to some of the best weather all year and one of the most walkable American cities, the home prices were up about 3% year over year, according to the San Diego Union-Tribune.
The real estate inventory in San Diego declined in a knee-jerk reaction when sellers decided it was safest to sell their homes later – a sort of retreat until things returned to more typical market conditions. The low inventory actually began to create bidding wars in certain areas and neighborhoods within the San Diego market due to the limited availability of homes for sale.
Another example of how the market differs radically from one place to another in the United States is found in a recent Brookings Institute study regarding the coronavirus’s impact on a screaming hot Washington DC real estate market. Some interesting data from that study includes-
- The core neighborhoods that comprise DC saw sales decline by as much as 30%; however, some DC suburbs saw real estate sales decline by nearly twice as much!
- Median Sales Prices for homes in the DC area were up, even in March, according to the study.
While there is no way to tell how long the coronavirus may impact Americans’ lives, the fact is this pandemic has thrust the real estate market into unknown territory. The market conditions and the surrounding economic data offer conflicting data as to the depth and width of real estate market disruption.
One thing remains abundantly clear. In real estate, there is always an opportunity to make a profit if the investor does their proper due diligence.
What’s your take? How do you see interest rates heading in the near future? in the long-run?