Spring is typically considered the best time of year to buy or sell a home, but this year, real estate transactions are coming too a screeching halt. As the number of COVID-19 cases increases exponentially each day, stocks have dropped, businesses have closed, unemployment has risen, and millions of Americans have been forced to stay at home. With all the uncertainty of our current situation, it’s no surprise that the housing market has taken a substantial dip.
If you were planning to buy or sell a home now, and are unsure of where you stand, you’re not alone. As federal and local governments continue to enforce new rules for our new reality, it’s hard to know where the market is headed. To help you make sense of what COVID-19 means for the housing market, we’ve gathered the latest information on home purchase trends, so you can get a better understanding on where you and the real estate industry are headed.
How New State Regulations Are Impacting The Real Estate Market
The cycle of a real estate transaction typically requires many in-person interactions from open houses and showings to appraisals, inspections and closings. As more states enact stay-at-home orders, there has been an extreme amount of confusion surrounding the real estate industry. While the rising number of COVID-19 cases has created plenty of uncertainty in the global well-being of the human population, the fact that individual states have been left with the task of setting new policies for safety has aggravated the situation.
State officials have responded with varying levels of restrictive measures. The lack of alignment on business closures has left individual cities and states scrambling to determine what qualifies as an essential business. While supermarkets, pharmacies, banks, transportation and healthcare facilities clearly fall under the category of essential, there is little consensus as to whether or not real estate services should qualify.
In New York and California, real estate agents have been told that they must conduct business from their homes, which has led to a vast increase in virtual showings. All open houses, in-person showings and property walkthroughs have been banned. However, not all states are following suit. In Connecticut, Indiana, Florida, Illinois, Ohio, Wisconsin and Hawaii, real estate has been deemed an essential business, allowing all rental and sales transactions to proceed. In states like Massachusetts, Michigan and Louisiana, the industry’s status is still unclear.
“As coronavirus news continues to dominate the headlines and everyone looks to take social distancing seriously, buying and selling a home the traditional way with guided tours and handshakes is now out of the question,” says Corey Walters, CEO of Homeworthy, a digital home-selling platform based in the Pacific Northwest. “Like so many industries across the country and world right now, the real estate market is sort of waiting with bated breath as rules and regulations continue to unfold.”
How COVID-19 Has Affected The Housing Market
Recently, the National Association of realtors conducted a series of flash surveys to gain better insight into how COVID-19 has been affecting consumer behavior in the housing market. Having now conducted two surveys, the first on March 9 and the second on March 16, NAR was able to compare the results to determine how the industry’s pulse has changed over the course of a week. Their findings, as well as observations made about local housing markets, paint a clearer picture of how these unprecedented circumstances have affected real estate across the nation.
How COVID-19 Has Affected Real Estate Buyers
Between the NAR’s two studies, buyer interest dropped significantly. On March 9, 78% of realtors reported there had been no change in buyer behavior. Only 16% of those surveyed noticed a decrease in buyers’ interest. However, by March 16, as schools began to close and social distancing guidelines ramped up, nearly half of agents claimed that buyers had become less inclined to purchase residential properties as well as commercial properties.
A similar trajectory was seen in New York City, which has not only the largest real estate market in the country, but now also 10 times more COVID-19 cases than any other state. Open house traffic has rapidly declined due to stay-at-home mandates. According to Fritz Frigan, executive director of sales and leasing for Halstead Real Estate in New York City, attendance at open houses across the Big Apple’s five boroughs dropped 42% between March 8 and March 15, and a whopping 58% between February 23 (before the news had hit home) and March 15 (the day NYC public school closures were announced).
When the lockdown was announced, some brokers still scheduled open houses, but the numbers dropped dramatically. Fritz Frigan says, “I counted approximately less than 800 open houses scheduled for that weekend. To give you a comparison, on a normal weekend, without the virus, we have between 5,500 and 6,000 open houses in New York City.”
Although the survey Frigan sent out this past Sunday only received 10 responses, six reported zero traffic, and four had only two people show up. As for the reason behind the dramatic drop in attendance, Frigan believes that the primary driver is “fear of infection, and not just from the buyers but also from the brokers and from the owners, who didn’t want strangers coming into their homes who may be infected.”
This sentiment is echoed by real estate professionals across the nation. “The housing market in each state we operate has clearly been impacted by COVID-19. However, we believe the impact to date is negligible compared to the upcoming months,” says Glenn S. Phillips, CEO and lead economic analyst for Lake Homes Realty, a 29-state real estate brokerage firm. “In the most recent few weeks, COVID-19 fears were minimized by most. At the same time, many were excited about the drop in interest rates. This leads these two factors to offset each other to some extent. Moving forward, the housing market will be far more influenced by COVID-19 than interest rates.”
Phillips’ insights are supported by NAR’s research into buyers’ feelings about the changing climate. Although lower mortgage rates initially increased buyers’ enthusiasm, according to 37% of realtors, that enthusiasm began to reduce within the 7-day period as concerns over the stock market correction increased. On March 16, the number of agents who reported that their buyers were motivated by lower interest rates fell by 9% as those who claimed that the stock market had caused their buyers to lose confidence increased by 15%.
How COVID-19 Has Affected Real Estate Sellers
As cases of COVID-19 increased across the country, sellers’ morale was also shaken. NAR’s studies show a clear decline in sellers’ confidence as news about the virus intensified. Although 81% of realtors initially reported that sellers had kept their homes on the market, that number dropped by 20% on March 16. And 16% of agents noted that sellers had decided to take their homes off of the market, marking a 13% increase from March 9.
Considering how quickly the situation has escalated, the NAR’s figures fall short in elucidating the full effect COVID-19 has had on home sellers and the housing inventory. Through Frigan’s more timely NYC data, we can see a far greater impact.
According to Frigan, 1,778 properties’ status changed to either permanently or temporarily off the market in January. In February, as dozens of cases began popping up around the country, 3,047 properties were removed. As of March 25, 4,454 homes were taken off the market this month alone. So, the number of properties taken off the market literally tripled in March when the disease started spreading in New York City.
For sellers who have kept their homes on the market, their behavior has become increasingly cautious. Of the realtors included in NAR’s March 16 survey, approximately 60% said that sellers had taken extra precautions when showing their homes. These precautions include canceling open houses, restricting the number of showings and requiring buyers to remove their shoes and wash their hands or use hand sanitizer upon entrance.
However, contagions are not sellers’ only concern. Buyers tend to distrust homes that linger on the market, and during these times, the potential for listings to be considered stale is high. To help support sellers whose homes are currently being listed, the Real Estate Board of New York has decided to eliminate the “days on market” calculation from their listings. This move, which will likely be followed in other areas, is intended to reduce sellers’ fears that their homes will receive less attention from buyers once the market recovers.
What To Expect Moving Forward
Although there are some closings currently taking place throughout the country, mainly from real estate investors, the number of transactions has been greatly diminished by both the virus and orders to stay at home. Appraisers and inspectors have struggled to gain access to homes, and government recording offices have closed their doors, making crucial aspects of the closing process challenging to complete.
Amidst the growing concerns over COVID-19, the housing market has clearly began to plummet. The spring selling season will not reflect the vitality it has in previous years. Most sellers will choose to hold off before putting their homes on the market, but those who cannot wait will list now and show their homes virtually. While the extreme shift in the industry seems alarming, the future may not be as dull as some expect.
Once the number of COVID-19 cases begins to steadily drop, and the stay-at-home mandate has been lifted, I believe the real estate market will see a boom in movement. All the homes people were planning to sell before everything went to chaos will enter the market, combined with landlords who’s tenants didn’t pay rent the last couple of months, and homeowners who now, can’t afford their mortgage, will all be highly considering to sell. Real estate investors will be taking advantage of the mass of product and lower prices, and consumers who are now working will begin spending and doing everything they haven’t been able to for the last couple of months. Which will in essence, bring our economy to a rise, causing the real estate market to rise in succession.
No one knows for certain where the real estate market or the U.S. economy as a whole is headed, but with some acute attention to the changing world we live in, we can all take advantage of this down turn, increase our knowledge of real estate investing, & come out on top with a bigger portfolio than ever before.