I speak with homeowners, investors, buyers, and others within the real estate community every day, and I am asked this question often: How’s the housing market?
We are all in un-chartered territory at the moment. The Coronavirus has stopped much of the world from operating. During my weekly real estate town hall webinar, most professionals are at a loss for words on how to advise their clients. In this article, I will be sharing with you my views as a real estate consultant, investor, and homeowner.
Today, many people feel fear as they have lost most of their income and become increasingly unsure about their future due to the Shelter-In-Place order. This feeling is similar to the Great Mortgage Crisis in 2008 which caused the Global Recession. Although the recession officially ended by the second quarter of 2009, the painful recovery did not truly begin until 2012. However, in every crisis there is opportunity, and many investors made lots of money during this time while others regretted their inaction and missed opportunities. It took four years before consumer confidence began to improve. Since then, most markets have returned above and beyond the last peak.
Many economists have predicted a housing crash in 2020 as we experienced the longest economic expansion in history. However, none had predicted the crash would be caused by the coronavirus pandemic. In January 2020, before the United States became widely aware of the severity of the coronavirus outbreak in China, instead of a recession, we saw a sharp increase in sales activities until the weekend prior to the first Shelter-In-Place order being enacted in Northern California. Since then, the real estate showings practically halted but real estate agents quickly adapted to using virtual tours to help desperate sellers move their properties. Surprisingly, demand is still strong with one caveat, that most buyers are much more conservative in their offer price.
So, the biggest question for everyone: Is this the right time to invest during the coronavirus pandemic? Since this is such an unprecedented event in modern history, no one has been able to answer with confidence. However, below are a few questions you should ask before making the decision.
How long will this Shelter-In-Place order last in your area?
This depends on how many people are willing to follow the Shelter-In-Place order and all the precautionary efforts recommended including wearing facial coverings in public places. The emotion of today’s coronavirus pandemic is similar to 9/11, where the entire world mourned with our country for the horrific terrorist attack on so many innocent people. We vowed to stand back up stronger and more united as a nation. Today, we feel the same sentiment as our invisible enemy is attacking the innocent and every citizen feels the effect of it. As a community, we must unite and bring back our economy once this coronavirus pandemic is over.
Will there be an influx of distressed sales?
In 2008, there was an overwhelming supply of homes because many homeowners had borrowed 100% of the purchase price, while their mortgage balance was often above the home value. The mortgage foreclosure moratorium then allowed many homeowners to seek short sale options while others simply walked away from their homes. Banks were left with too many foreclosed homes leading them to desperately sell to clear their books. Today, we are in a much different situation. Most homeowners have invested an average of 20% down payment on their property, which discourages homeowners to seek short sale or foreclosure options. In addition, part of the two-trillion-dollar coronavirus stimulus package allows homeowners to suspend their mortgage payments up to a twelve-month period.
With such a different scenario, even if the sellers are suffering from job losses, they will not sell their home at this time. In other words, unless sellers are in urgent need, most homeowners may decide to not sell their homes until the market recovers. In this case, we will have a shrinking supply which will limit the significant drop in home prices.
What asset type are you investing in?
Not all asset types will have the same effect from this coronavirus pandemic.
Hospitality - many hotels and short-term rentals will have a significant price reduction as occupancy is down over 95%.
Offices - as more people are forced to work from home, many companies will find this a temporary effort to reduce their overhead costs by reducing office space usage. This may also become a more permanent way of working for many companies.
Retail - with more restaurant and small business closures, we may see a surge in vacancy.
Apartments - class C buildings will be affected more as the tenant type is more susceptible to the effect of loss of income. Unfortunately, landlords still have to pay for maintenance, utilities and property tax to maintain the building. With such a heavy burden, landlords may decide to sell at a lower price if they do not have sufficient reserves to get through this period.
Industrial, warehouses, and storage - these asset types will have smaller impacts as manufacturing, storage, and larger facilities will become more popular in the coming days.
1-4 residential units - this asset type will have less impact as mortgage deferment and larger down payments will discourage foreclosures. On the other hand, we may see more people seek bigger homes with anticipation of working from home more often.
Where are you investing?
Choosing the right market to invest is always important. Different markets will perform differently. Bay Area Real Estate will have less impact as the majority of the workforce is in the technology sector. Their down payment highly relies on the stock market, but once the stock market recovers, their ability to buy will return quickly. Other markets such as Las Vegas will be impacted more significantly where the recovery may take much longer than most.
As always, you should consult your trusted real estate advisor before making your real estate investment decision. Our Real Estate Town Hall webinar helps bridge the information gap between the real estate industry and consumers. So you will feel empowered to make the right real estate investing decision! In the meantime, I hope you all are safe and healthy!
POST WRITTEN BY
Helen Chong is the founder and CEO of Haylen Group and an official ForbesSpeaker.