COVUD-19, the disease that results from contracting the coronavirus, was declared a pandemic by the WHO in early March. Since then, it has claimed tens of thousands of lives, and measures taken to stop the spread of the virus have brought business to their knees and hamstrung entire industries, as well as putting a lot of people out of work. Fortunately, the real estate industry has been less severely impacted than some – though it is still suffering. So let’s see how, exactly, the coronavirus is impacting the real estate industry in Hampton Roads.
Overview of How Coronavirus is Impacting the Real Estate Industry
The online real estate giant Zillow recently conducted a survey to see how previous pandemics had affected real estate. They found that “during previous pandemics . . . while home sales dropped dramatically during an outbreak, home prices stayed about the same or suffered a slight decrease. This makes intuitive sense because it’s harder for prices to change when there are few transactions. In short, previous pandemics have simply put the housing market on pause.”
And this scenario seems to be playing out again when we consider how the coronavirus impacting the real estate industry in Hampton Roads. Traffic to the big online listing sites has dropped by nearly 40%, and new listings in major metropolitan areas dropped by about 70%.
Though the impact will vary from location to location, the banning of-person home showings have certainly had an adverse effect. Still, agents and firms have found many digital solutions to keep some life in home sales.
There’s an additional way the coronavirus is impacting the real estate industry from the financial end. With so many people out of work, the federal government has instituted a moratorium on foreclosures. They “directed mortgage servicers to offer forbearance or reduced payments on any mortgage-backed by FreddieMac, Fannie Mae, or the Federal Housing Administration.”
Mortgage Rates Going Down, Requirements Going Up
The coronavirus is definitely impacting mortgage rates.
The process has played out like this: “The Federal Reserve implemented two emergency interest rate cuts since the coronavirus outbreak, bringing the yield on Treasury bonds to almost 0 percent. Furthermore, the stock market crash can have an effect on interest rates, too. When investors start thinking the stock market is too risky – like right now – they sell their stocks and buy bonds. The increased demand pushes the price of bonds higher. The higher the price of bonds, the lower the interest payment – called the yield – is relative to the price. When bond yields are lower, mortgage rates are lower, too.”
The result of all this is that mortgage interest rates have reached near historic lows, just a little more than 3%. And while rates are going down, lending requirements are tightening up. “Chase now requires borrowers to have a 700 credit score and a 20 percent downpayment to get a mortgage.”
State of the Real Estate Market in Hampton Roads
To really get a handle on how the coronavirus is impacting real estate, let’s take a look at the Hampton Roads market and similar markets.
Before the pandemic hit, the housing market was already tight. Home prices were still rising, and supply was still behind demand. In fact, in some areas, prices were close to an all-time high while supply was at near-record lows. Then, at the end of last year, supply shrunk even more (although there was a spike in supply earlier in2019).
But now in 2020, the coronavirus is impacting housing so that it is exacerbating the existing problems. Owing to measures taken to combat COVID-19, we are currently in a recession – with high unemployment, businesses closing, and wages cut. As a result mortgage applications have dropped.
Now, this would seem to indicate that supply will catch up with demand (since demand is dropping), but that’s not really the case. People still have to have a place to live, and they are still buying houses.” A recession doesn’t change these circumstances for people” industry experts say. “Even in full-blown recessions, the housing market is incredibly durable.”
What Does the Future Hold?
The coronavirus is impacting all areas of the country and all corners of life. It has, according to careful observers, “changed everything, and new details every day after what the landscape for homebuying could look like after the pandemic passes. While studies of previous pandemics suggest that home prices won’t drop all that much, the economic fallout of COVID-19 could be sweeping.”
One thing that could happen is that the mortgage industry could be thrown into chaos and experience a liquidity problem if the mortgage payment suspension is prolonged. Lenders just may not have the money to lend to new homebuyers.
But it’s not all doom and gloom.
“Academic and real estate consultant Mike DelPrete looked at new home listings data for selected cities in the United States and concluded that shelter-in-place orders cause a city’s new home listings to drop to a bottom after one week. Then after a month or so passes, new home listings start to gradually rise. This is significant because new home listings are a measure of housing supply.”
Still, the recovery will likely be gradual. And it will, of course, depend largely on how the coronavirus is impacting and continues to impact the real estate market.
Why Your Local Agent is Even More Important
The coronavirus and measures taken to combat it have definitely shaken the real estate industry. Still, the coronavirus is impacting the real estate industry in Hampton Roads less dramatically than other industries and businesses. It’s just that it’s now a much tougher game for both buyers and sellers. That’s why a good local agent is so important now – to connect sellers with buyers and to help buyers find properties when supply is low. Find out today how our agents can do exactly those things. Call us at (757) 513-6836.