Wondering how the Coronavirus is affecting home sales? We did too, and figured what better way to find out than to do some research. Here’s what we found out (we think the results will surprise you).
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COVID-19 has been wreaking havoc for months, taking many lives since January 2020. As the virus moved across the United States, lockdowns and social distancing measures were put in place to flatten the curve and limit deaths.
Higher unemployment rates and fewer people venturing out mean that we see big economic dips in markets from retail to housing. Will these negative economic shifts in the housing market be long-term or short-lived?
What kinds of indicators can we use to navigate a situation the world has never seen before? It’s a complicated matter, so let’s look at the housing market and how it’s being affected by COVID-19 so far.
Housing Market Changes During COVID-19
The shifting housing market has been a hot topic since the rise of COVID-19, but most of the discussions center around one thing: The sheer unpredictability of this virus and how it will behave over time.
Less inventory on the market, more demand for housing outside of urban areas, and the potential for new lockdowns and restrictions may hinder both buyers and sellers in the housing market – but for how long?
Predictions are everywhere, but the only real indicators we have are the last few months and how the housing market has responded so far. Here’s how COVID-19 has affected the housing market and home sales so far.
Urban Exodus
One clear trend so far is the movement out of densely populated urban areas. Many people are trading the city lifestyle for something a little more suburban or rural in response to COVID-19.
Leaving the city is striking a chord with so many people for a few reasons. These include the opportunity to work remotely, the difficulty of social distancing in crowded areas, and a desire to be closer to family outside the city.
Jobs have always been a significant draw to the big city lifestyle. Now that many jobs have relaxed rules about working in-office, allowing remote work to comply with shutdowns and social distancing mandates, cities’ attraction is weakening.
But those with weakened immune systems or fear of contracting coronavirus now see a minefield.
“Most importantly, the pandemic has induced a fear of closeness. To live in a city means to be in a dense environment where you’re physically close to people. I think all those trends mean this could be different, and it’s going to be a hard road to a comeback.” –Eric Klinenberg, NYU Sociology Professor
Even after lockdowns and restrictions lift, many employers will continue to allow employees to work from home. An estimated 25-30% of the workforce will be working from home multiple days per week by the end of 2021.
Consider, too, that in urban areas, social distancing is difficult at best. Apartment buildings, elevators, crowded streets, and public transportation may have seemed harmless before.
For example, according to Lucas Schelkens, condo sales in Palm Springs have declined by 50%, while detached home sales are skyrocketing. In January 2020, 77 homes sold for an average of $786,618, while in June, this increased to 90 homes for an averages of $895,882.
Record-Low Mortgage Rates
The changing housing market amid COVID-19 isn’t just due to the urban exodus. Homes are an essential good, even during a pandemic. Mortgage interest rates continue to dip to record lows.
In fact, they dropped from an average of 3.39% down to 3.03% in just two weeks. People are taking notice of the low-interest rates, looking for homes, and applying for loans, even if they have to do it with modifications.
Last week, the Mortgage Bankers Association shared that their applications for purchase loans had increased 33% over the previous year.
Changing Lockdowns and Restrictions
As most states in the country imposed some level of coronavirus lockdowns or travel restrictions, home sales naturally fell. Open houses and private showings came to a halt in many areas. In fact, some states even banned open houses and showings.
According to James McGrath, Co-Founder at Yoreevo, “…agents weren’t allowed to do in person showings for three months which significantly reduced sales activity. Contracts signed in April, May and June were down about 80% year-over-year.”
After a 3-month nationwide decline in home sales from March to May, June sales showed signs of a slow return to normalcy, especially after the economy began to reopen, and restrictions were either lifted.
But three potential problems could hinder the housing market in the days ahead, even absent of lockdowns and restrictions:
- Not enough housing inventory available – down 27.4% since last June
- Buyer and seller uncertainty surrounding a possible second wave of COVID-19 cases
- Higher average home prices, up 5.1% since last June
Even record-low mortgage interest rates can’t solve these problems. Realtor.com notes, “While more sellers are comfortable entering the housing market compared to April, the lack of further improvement in newly listed properties signals that a return to normal conditions for the housing market is still just beyond reach at this time.”
I am worried about home prices… I’m worried that it will lead to lasting scars. –Robert Shiller, Yale University Professor
The National Association of Realtors’ chief economist, Lawrence Yun, has a different take on the future of the U.S. housing market but agrees that home prices have to decrease.
He says, “Home sales will surely rise in the upcoming months with the economy reopening, and could even surpass one-year-ago figures in the second half of the year.”
But that’s not all. He also says, “New home construction needs to robustly ramp up in order to meet rising housing demand. Otherwise, home prices will rise too fast and hinder first-time buyers, even at a time of record-low mortgage rates.”
Commercial Real Estate Effects
It’s no surprise that the Coronavirus has severely impacted residential home sales. But it’s also begun to affect commercial real estate as well. Consider this – commercial real estate traditionally acts like a bond.
When interest rates fall, market values increase. The reason is simple: lower interest rates result in higher cap rates, and this means the property generates more income, making it more valuable.
With interest rates at record lows, you’d think prices would increase. However, COVID-19’s affect on commercial real estate has also been profound.
In the multifamily industry – Asking prices for multifamily properties dropped for the first time in the last decade … However, despite this the multifamily industry is likely to be fairly resilient, and this is due in part to demographic trends that support multifamily demand and also the support provided from government subsidies. We still continue to see demand for multifamily properties and are still brokering deals on a regular basis. –Ronny Vogel, CFO of Assets America
Housing Market Predictions for 2021
While it’s still too early to make reliable predictions, there are housing market indicators that show promise in specific regions and markets and the potential for more significant problems in others.
One of the best indicators is average home prices in a given market. Not every housing market in the United States will be affected the same way by the COVID-19 pandemic.
Some will see increased demand for housing (and a resulting increase in average home prices) as people move in from other areas or decide they’ve waited long enough to buy or sell.
Other markets will see decreased demand for housing (and a resulting decrease in average home prices) as they decide to move out of the area or refrain from buying or selling a home.
Veros Real Estate Solutions reviewed housing market appreciation statistics to predict the ten strongest and weakest housing markets in the United States as we move toward the first quarter of 2021.
Let’s take a look at their predictions for which parts of the country will see the biggest comebacks and take the worst hits as we approach 2021 and deal with the pandemic as we go.
Best 10 Housing Markets in 2021 (Predicted)
- Boise, Idaho and Nampa, Idaho: The number one increases in housing prices could be seen in these two cities, where prices are expected to rise about 7.6% by the end of the first quarter in 2021.
- Spokane, Washington: While housing prices will not increase as much as previously predicted in Spokane, expect to see a 6.4% increase here.
- Idaho Falls, Idaho: Prices will increase significantly in this city by about 6.3% by the end of the first quarter in 2021.
- Sierra Vista, Arizona: Housing prices may increase by about 5.8% in Sierra Vista by 2021.
- Olympia, Washington: This city could have a housing market appreciation rate of 5.6% by the end of 2021’s first quarter.
- Phoenix, Arizona: This prediction also includes the cities of Mesa and Glendale. This metropolitan area could see a significant increase in home prices over the next year – up 5.3%.
- Colorado Springs, Colorado: Also expected to see a 4.9% increase in average home prices, Colorado Springs will see a lot of demand for housing over the next year.
- Longview, Washington: This city could have a 4.9% housing market appreciation rate by next year.
- Yakima, Washington: Another Northwestern city predicted to have gains by 2021, Yakima’s increases in home prices are also expected to be about 4.8%.
- Eugene, Oregon: This city is expected to have a 4.8% housing market appreciation rate (increase in home prices) before the first quarter in 2021 ends.
Worst 10 Housing Markets in 2021 (Predictions)
- Baton Rouge, Louisiana: Home prices in Baton Rouge may drop by about 2.3% before the end of the first quarter in 2021 due to the COVID-19 pandemic.
- Chicago, Illinois: The largest city on this list, Chicago’s home value decrease is expected to be about 2.3%.
- Bridgeport, Stamford, and Norwalk, Connecticut: These cities make up the greater Bridgeport metropolitan area. Together, they might see a drop by about 1.5% in housing prices.
- Champaign, Illinois: The home of one campus of the University of Illinois might see a more significant drop in home prices, at 1.5%.
- Springfield, Illinois: This is another Illinois city expected to experience a 1% drop in housing prices by the first quarter of 2021.
- Bloomington, Illinois: This city will take a little worse of a hit than those above, set to experience about a 1% drop in housing prices due to decreased demand for housing.
- Hartford, Connecticut: Less housing demand will drop home prices by about 0.9% in Hartford, according to Veros Real Estate Solutions.
- Wheeling, West Virginia: Like Peoria, Wheeling could see a 0.9% decrease in average home prices come 2021.
- Peoria, Illinois: Home values might depreciate by about 0.9% in Peoria during this unsettled period.
- New Haven, Connecticut: We could see a drop in housing prices by about 0.8% in New Haven by the first quarter of 2021.
How COVID-19 is Affecting Home Sales
About 22% of people say they either moved once the pandemic began or know someone who did. With so many moves happening in such a short time, home sales have certainly been affected by several secondary effects of COVID-19:
- Unemployment
- Upgrading to a larger house
- Lockdowns and social distancing
- Paused home searches among them
Allow us to break down each of these important factors into their various elements.
Unemployment
Job losses are one of the biggest reasons the coronavirus pandemic is affecting home sales and the housing market as a whole. Keep in mind that 30% unemployment affects everyone.
With so many industries affected by closures, including tourism, restaurants and foodservice, hospitality, sports, entertainment, beauty and barber, and retail, unemployment has been a continuing concern.
Job loss in an area heavily affected by COVID-19 might result in a person or family downsizing considerably or pulling up stakes to start again somewhere with fewer cases or economic restrictions.
Upgrading
In many of the nation’s most expensive real estate markets, increased COVID-19 cases could be a factor in buyers moving to find bigger homes for a similar price in a less competitive housing market.
Lockdowns and Social Distancing
While many states are opening back up and easing or eliminating the restrictions put in place earlier this year, some are still under varying levels of lockdown or rephasing their openings.
Traditional real estate activities like open houses, private showings, meetings, financing, and closing transactions can be impossible with social distancing or highly restricted in some areas.
This also contributes to the dip we’ve seen in the housing market since March. According to economics, if supply outstrips demand, prices fall. And that’s exactly where we’re seeing now.
Paused Home Searches
Even those who find themselves in a financial position to buy or sell a home might not leap just yet amid the pandemic’s uncertain nature.
Forbes reported that 80% of respondents to an OJO Labs survey indicated that they were postponing or stopping their home search in light of the rising number of COVID-19 cases in the United States this year.
Those who said they were postponing their search said they still look at listings online and take virtual tours. However, they’re not ready to enter the market with so much instability.
COVID-19 and Home Sales Looking Forward
Many experts say the housing market is on its way to recovery. As more renters work remotely or lose a steady job in the city, they begin to move out of densely populated urban areas. Now, they’re looking for homes with land in smaller towns.
Realogy Holdings CEO Ryan Schneider said in an interview on The Exchange: “In every urban geography, the web traffic of people and what they’re searching for has changed, versus six to 12 months ago, to be much more suburban.”
Sales Will Increase
Lifted restrictions and lockdowns mean open houses and private showings will increase again. Reopening the economy may also improve buyer confidence in the housing market.
Or at least, that’s the theory, provided there are no more shutdowns or a second wave of COVID-19 cases. The record-low mortgage interest rates may continue to encourage first-time homebuyers and homeowners who want to refinance.
However, the rising average home prices across the country, thanks to high demand and low housing inventory, will be a hurdle.
There’s a feeding frenzy. It’s a perfect storm. With the inventory so low and below median price range so sought after, people aren’t downsizing because there’s nothing to look at. But we keep eating inventory because there are sales. –Ed Neaves, Illinois Realtors President
Fortunately, there is hope that the average home prices in the United States will begin decreasing. While this is no sure bet, some believe there’s a light at the end of the tunnel.
McGrath says that, “With Phase 2 of NYC’s reopening plan on June 22nd, the market has been much more active. We’re still dealing with fewer buyers and fewer listings but the buyers who are active are very serious and rushing to purchase properties. We’ve also seen a lot of listings come to market after Phase 2 – Manhattan listing inventory is up about 30% from the end of May.”
The Truth Is Harrowing
The unfortunate aspect is that experts believe the drop in home prices will be due to coronavirus’s secondary effects – the increased unemployment rates and spikes in case numbers across the country.
In a recent report, CoreLogic wrote they expect to see a 6.6% drop in average home prices over the upcoming year due to the fallout from the pandemic.
The best thing we can do is take note of important statistics while keeping an optimistic outlook for the future of our nation’s housing market and the country as a whole.
COVID-19 has changed a lot in a short time. As our nation and the world waits to see what’s next, be it a vaccine, discovery, or a resurgence, one thing is certain: We’re resilient enough to make it through.
