Like many industries right now, real estate will undoubtedly be affected by the spread of COVID-19. As efforts to flatten the spread curb are continuously enforced, it’s clear that preventative efforts impact the economy overall. But to what extent can we expect real estate to be affected? As of now, data doesn’t forecast a housing crisis similar to what we experienced with the housing bubble in 2008, but there are key things to be aware of. The impact on real estate will vary depending on the market and sector, however, impacts will exist.
Currently, mortgage interest rates are falling, and in early March, CNBC reported that they may even fall as low as zero percent. “There’s a lot of volatility in markets, and the Fed is very concerned about market functioning and keeping liquidity free-flowing and credit available,” said Michael Gapen, head of U.S. Economics at Barclays in an interview with CNBC.
This gives current buyers the opportunity to pay down the loans through a home refinancing. According to Freddie Mac, the average rate of the 30-year fixed-rate mortgage dropped to 3.29%—lower than the last staggering drop that occurred in 2012. However, these low rates may not be available for long, and will most likely not fall beneath 3%.
This is because these rates are impacted by uncertainty, but as the situation around us becomes more finite and predictable, interest rates are likely to rise again. Furthermore, with a slower market, more buyers might consider this a great opportunity to invest while competition slows down. Buyers entering the home market space may be able to snag a much better deal than they would have been able to a few months ago.
“Even if they come out and say maybe the coronavirus will be a little bit worse than we thought that would bring certainty,” said Jay Farner, CEO of Quicken Loans. “If it makes sense, you can save money, you got to lock your interest rates. Take advantage of the savings.”
The lack of Chinese buyers will also contribute to a market slowdown, particularly in states like New York and California where wealthy foreign buyers invest in luxury properties. Chinese buyers spent around $13 billion between 2018 and 2019, which was already 56% lower than the year prior. As a result, the upper-end market is expected to get even softer. Although there are several other contributing factors (such as tighter immigration laws and strict regulations on international spend), COVID-19 will further compound the issue, as travel bans prevent buyers from seeing the property in person.
On the flip side of that coin, as things settle down, we may see an influx of Chinese buyers further down the line, particularly during times of unrest in their own countries. For example, after the anti-government protests in Hong Kong in 2019, there was a spike in properties purchased in the United States from buyers in China.
This also impacts property development. Because China is so integral in the world’s supply chain, businesses that rely on products sourced from China will be forced to wait longer than usual to get the supplies necessary to continue property development.
“There are still sales,” Mary Roberts, Arizona Realtor Association President, said in an interview. ”People will always need to find people always needing to sell. They could get job transfers, getting into a new school year. It’s always going to be buyers and sellers having to do.”
Naturally, it does have an impact on the way that real estate agents and buyers and sellers are interacting with another. For instance, real estate agents need to ask questions about the health status and recent of their potential clients for the betterment of everyone. This could make viewings and open houses more complicated. Sellers might leave all doors open and lights on for prospective buyers and request that visitors don’t touch anything and wash their hands. However, agent-client relationships can still continue to be fostered virtually and digitally.