The coronavirus has definitely affected everyone around the world in some way. In some cases, people have fell ill or even worse, died from the virus. There has been nationwide lockdown across the globe, effecting businesses and of course the economy. But once the Covid 19 pandemic is over, how would things change and what changes would we see in the US real estate market?
One of the things that have changed and will change is that there will be low housing inventory. The Covid-19 has impacted both supply and demand in real estate. Many homeowners who are planning on selling or who have their house on the market, has cancelled their listing or decided to wait. Also new listing are falling. In the most recent two weeks ending March 29 and April 5, the volume of newly listed properties decreased by 34 and 31% year-over-year respectively, the biggest declines this year. While still an early measurement, the drop in the last week falls outside the bounds of normal spring activity. Hence, the declines in newly listed homes are highly indicative of initial seller response to Covid-19 restrictions, with more potential sellers reevaluating or postponing sales. If continued, this could mark the start of further declines in new inventory in April.
Another thing that has change and would be slow home sales. Before Covid-19, it was forecast that home sales will slightly decrease in 2020. Now, it is projected that home sales will drop steadily with higher declines. Some of the reason for these significant declines will be because of economic factors such as unemployment, household income, and GDP. While still preliminary, the readings in March showed home sales were down 30% year-over-year. If preliminary figures hold, home sales in the sample composite could range from down 5 to 10% year-over-year in March. This yields a preview of the magnitude of slowdown expected in home sales around major markets in the country in the weeks to come. The full national April sales figures are likely to capture bigger and more widespread declines since April sales would typically have gone under contract in March, post-Covid-19.
Lastly, mortgage rates will be cheaper for home buyers. There’s only so much that lower mortgage rates can do to stimulate home sales while fewer homes are on the market. Mortgage rates and affordability aren’t the biggest challenges in today’s housing market. A lack of affordable homes for sale is. The Federal Reserve announced on Sunday that it was cutting its benchmark federal funds rate to essentially zero, and while mortgage rates aren’t tied directly to that figure, they tend to follow a similar path which means we could possibly be seeing 0% mortgages in the near future. Who knows. One thing is for sure is that interest rates will come down over the next few months. As long as we flatten the curve on Covid-19 and begin seeing a physical recovery and treatment preparedness, the markets will begin to normalize and mortgage interest rates will begin to come back down.