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What does the Coronavirus mean for the U.S. Housing Market?

Wednesday, March 18, 2020   /   by Jordana Tobel

What does the Coronavirus mean for the U.S. Housing Market?

Let’s start by looking at the bigger picture and the national market:

The national housing market’s high demand and low inventory in recent months has caused prices to rise.. The 30-year fixed mortgage rate averaged 3.45% for the week ending Feb. 27, compared to a year ago at the same time when it averaged 4.35%, according to Freddie Mac. That rate is the lowest in three years. These low rates have fueled recent sales activity: there was a 9.6% increase year-over-year from January 2019 to January 2020. Additionally, new home sales reached their highest level since 2007.

Now comes Corona:

There is no doubt the coronavirus outbreak, now labeled a pandemic by the World Health Organization (with more than 118,000 cases, 4,000 deaths and a foothold in every continent), will have an impact on the housing market. Anyone who says otherwise is in denial.   The stock markets plummeted because of concern over corporate health and plunging revenues. The supply chain of approximately 75 percent of U.S. companies has been disrupted. Conferences, trade shows and mass gatherings across the country have been postponed or canceled. Job losses will follow as travel and tourism industries continue to suffer further derailments. These factors combine to cause many buyers to see their funds decrease for down payments or second home purchases.

Additionally, fear means that investors put their money in bonds rather than stocks, driving the bond market up. The higher the bond price, the lower the interest payment (the yield) is relative to the price. The pressure for lower rates means homes will stay affordable but leaves a question: how much will that help us if people are too nervous to spend and feel uncertain about their future? Will they have a job? Is their money safe? These are the questions consumers will be asking themselves. These same questions are what will impact our housing market.

What are the facts:

Here's what we know for sure:
1. In our history, the last 5 virus outbreaks, the stock market has reacted.
2. After each reaction, the market returned.
3. A stock market correction does not equal a housing crisis.

This isn't a time to panic. The uncertainty may actually be good news for real estate. As Fleming concluded in his report:

"Amid uncertainty, the house-buying power of U.S. consumers can benefit significantly."

What’s in our future:

Counter to the concerns above and possibility of a minor recession, the decrease in demand may be welcome for some buyers in competitive markets. However, prices will not drop. Instead, the pace with which prices are rising will simply slow.

It’s important to highlight that the current situation should not be compared to the Great Recession of 2008, a true financial crisis with many different contributing factors. The challenges that our economy and housing market faces today are nowhere near as dire as they were then. In 2008, many deep-rooted issues in the economy -- including an inflated housing market, loose lending practices, high unemployment, and several quarters of contraction -- contributed to the crash. That is not the case today.

“This isn’t a financial crisis,” says Jonathan Corpina, senior managing partner at broker-dealer Meridian Equity Partners. “This is a global epidemic. This isn’t a flaw in the system that we’re uncovering like the subprime mortgage debacle.”

Consumers, realtors, and investors alike should take a collective deep breath and understand that not only is the housing market not directly tied to swings in the stock market, but most people do not buy homes purely as investments. Housing is a basic need driven by other factors including needing a place for shelter, warmth and somewhere to sleep.

To hear more, watch the video below:

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