It’s natural to wonder how the coronavirus pandemic will affect the housing market, especially since many areas have only just recently recovered from the 2008 recession. In fact, a recent Gallup poll shows that only half of Americans think it’s a good time to buy a home. However, despite an uncertain economic outlook, a lot of people are still looking to move–pandemic or no pandemic.
There are many reasons why you might be in the market to buy or sell a home right now. You may have put in an offer on a house before the pandemic hit full force and now your current home needs to be sold. You may have started to look for a new house prior to the pandemic, and are now wondering if you should continue your search or put it on hold. Or you may find that the more time you spend in your current place, the less it works for you and your family. In each case, there are many short- and long-term factors you might be worried about.
The good news is that buying and selling is still happening, even in the age of stay-at-home orders and social distancing. There can, however, be some challenges in the face of COVID-19. If you’re willing to navigate those hurdles with the help of your real estate agent, there are a lot of good reasons to see what the current market has to offer.
What We Know: How COVID-19 Is Affecting the Housing Market
As a nation, we haven’t faced such a pandemic in over a hundred years, when our real estate market and economy looked quite different than they do today. It’s difficult to predict how our current pandemic will affect the housing market, especially when so much relies on medical breakthroughs that have as yet been slow in coming. But there are some things that we do know.
Home sales are still happening. However, most realtors and home buyers across the country are modifying the usual procedures. Instead of house-hunting in person, realtors are offering clients virtual home tours and Facebook live showings. In most areas, including Marion County, serious buyers are currently allowed to tour homes, though proper safety measures, including standing six feet apart and the prolific use of hand sanitizer or hand washing are encouraged. Additionally, home inspections and closings might look a bit different, too. We’ll talk more about changes made to protect buyers and sellers later.
Not all markets will have the same impact. Even though home sales are still happening, across the board there are fewer homes being listed right now than at the same time last year, which results in fewer sales. Still, some areas will experience greater effects than others, whether it’s fewer sales or bigger decreases in property value. A lot of this depends on whether or not home prices in a given area were inflated before the pandemic. In other words, the hotter the market, the more potential there is for a bigger impact on sales prices.
Here in Florida, we haven’t seen the drastic decrease in listings and sales that other areas have. Although the data is still being compiled, we know that home listings in Tampa were only down about 20% in March, while other areas of the country saw drops over 40%. Markets like Central Florida have seen even less impact.
In the long run, the pandemic might not change things much. Many real estate professionals think that COVID-19 may not have a significant effect on the real estate market in the long term. In an article in Curbed titled “Homebuying During a Pandemic,” George Raitu, a senior economist for Realtor.com, speculates that “If a majority of Americans have jobs, and restaurants, airlines, the concert industry, and other hard-hit industries can quickly ramp up, the housing market will follow.” He believes that the market can largely remain stable even if the economy remains partially closed through June. However, he says, if come July, “consumption is still frozen, we’ll see a much bigger hit to the housing market,” though the biggest effects will be in pricey coastal markets like New York, Philadelphia, and Washington DC.
But, even a full-on recession probably won’t hit the real estate market as hard as the financial crash did in 2008. Why? Because the relationship between the last financial crisis and the fallout from our current pandemic are radically different. As housing market specialist Jeff Andrews, writes, “The 2008 recession didn’t cause the housing market to go into freefall. The housing market going into freefall caused the recession.”
Because mortgage rates are still at near-historic lows, demand for housing is still high, and since there have been numerous programs instituted to help those affected by the pandemic in the form of unemployment benefits and freezes on mortgage or student loan payments, it’s likely that the housing market will weather this storm with minimal impact.
The Benefits of Buying or Selling a Home During COVID-19
The threat of coronavirus will likely hang around for the foreseeable future. But people will still want or need to relocate in the meantime, either under strict stay-at-home orders, or more relaxed guidelines. While there are certainly some downsides to buying or selling a home right now–from fewer listings or buyers to restrictions on activities that can add additional hurdles to the process–there are actually a number of benefits, too.
1. Lower Interest Rates
According to Nerdwallet’s article “Mortgage Interest Rate Forecast,” while rates did rise in March when the bond market was unstable, they fell again after the Federal Reserve purchased $200 billion in mortgage-backed securities to remedy the situation. Mortgage rates are already below where they were before the pandemic started and are expected to continue modestly decreasing.
2. Less Competition
The current restrictions on travel, non-essential business, and social interaction have, unsurprisingly, put a damper on many prospective buyers’ house hunts. Additionally, loss of employment has taken many buyers off the market, meaning that the buyers who are left are facing significantly less competition.
Sellers are in a similar boat, as there are also fewer homes being listed, so available listings are getting more attention and prospective buyers may be more willing to overlook things that would be deal-breakers in a market with more options. All of this could all change quickly though. As social-distancing restrictions are relaxed, buyers and sellers alike will face increased competition as more buyers come out of the woodwork and more homeowners decide to list.
3. Fewer Bidding Wars
With fewer buyers on the market, real estate professionals have reported a significant decrease in the number of bidding wars. Most buyers don’t want to get caught up in a bidding war, for obvious reasons, but they are not always all they’re cracked up to be for sellers, either. Higher prices from bidding wars can create severe problems for sellers if the house doesn’t appraise for the inflated value, or if the winning bidder isn’t approved for a mortgage for the amount of their offer. In fact, it’s not unheard of for houses to end up back on the market months after a bidding war. And sometimes strategies to incite a bidding war, like pricing homes lower to entice multiple offers, end up backfiring for sellers if there aren’t multiple buyers interested at once. During the pandemic, the sale of a house might take longer, but that could be a good thing: the selling process may turn out to be less of a high-pressure whirlwind while also leading to a more secure deal.
4. More Individual Attention
Since fewer people are buying and selling now, real estate agents can spend more time working for their individual clients. This is also important because, with social distancing rules in effect, it might take agents more time to find work-arounds for common real estate procedures and transactions like giving tours or arranging low-contact closings. Ultimately, the extra one-on-one attention means that buyers and sellers can make better-informed decisions about things like listing prices, budgets, time lines, and other buying or selling strategies.
How do you decide if the time is right for you?
While it is certainly not the worst time to buy or sell a home, dealing with market uncertainty can be scary for homeowners and homebuyers. Major concerns for many include how the pandemic will affect real estate prices, and whether or not a volatile economy will end up costing them their income.
Considering the Impact on Future Home Prices
While home prices have been holding steady so far, some predictions see them falling in a few months’ time, while others have them remaining about the same. Because of the possibility of price decrease, it might be advisable for potential sellers to begin the process of putting their home on the market now, as it is unlikely for property values to go up significantly in the next few months. Sellers who list now can also take advantage of the benefits of a less competitive market, as mentioned above.
Potential buyers might be considering waiting to see if they can get more home for their money if prices go down later in the year. But though it’s possible, there’s not sufficient evidence that there will be a huge impact on prices. According to a recent Zillow review of studies on the impact of past pandemics on real estate, during the SARS outbreak in the early 2000s, “Hong Kong house prices did not fall significantly, but transaction volumes fell by 33-72% as customers avoided human contact […] After the epidemic was over, transactions snapped back to normal volumes.” It appears that the impact of COVID-19 will be similar for our current market. What this likely means is that you probably won’t get an amazing deal if you hold off buying for a few months, but you will may face increased competition from others.
Facing the Possibility of Unemployment
A truly compelling reason to avoid taking on a potentially larger mortgage payment is if you fear you or your spouse are in danger of losing a job. But timing is everything. If you do lose a source of income, there are different remedies depending on where in the homebuying process you are when it happens.
If you are worried about loss of income, it is definitely advisable to speak to your employer before you begin your housing search. While they may not be able to give you complete peace of mind, any information that they can provide about the security of your job could be valuable in making your decision. Keep in mind that mortgage companies do verify your income with your employer before approving your loan. If you lose your job or experience a decrease in income after you put an offer in on a home (but before settlement) and your loan falls through, you are legally allowed to back out of the deal as long as you and your agent include a financing contingency with your offer.
Lastly, if you lose your job after settlement, there are a number of options for financial relief during the pandemic. In addition to increased unemployment benefits, most mortgages are backed by Fannie Mae and Freddie Mac, who have been directed by the Federal Housing Authority (FHA) to temporarily put a hold on all foreclosures. The FHA has also issued a payment forbearance which “allows for a mortgage payment to be suspended for up to 12 months due to hardship caused by the coronavirus.” If you’re not sure if you have a mortgage backed by Fannie Mae or Freddie Mac, you can check with your mortgage company; if you live in Marion County and your loan was under $510,400, it’s likely that it is.
Protections for Buyers and Sellers
Nobody wants a repeat of the 2008 financial crisis, and as a nation we’ve learned a lot about what is required to keep our housing market in good standing. State and federal government agencies also know that it’s important to balance health and economic risks, and have put measures in place to keep infection levels down while allowing important business transactions to continue. If you decide to buy or sell a home during the current pandemic, but are concerned about financial or health risks, there are certain protections for you, as well as things that you can do to minimize your own risk and insure a good experience.
Protect Yourself with Contingencies
Even before COVID hit, when buyers freely toured homes and sat in on home inspections, sales contracts usually contained one or more contingencies or clauses designed to protect one or both parties should a problem arise. Common contingencies—which are outlined in depth in our Pending vs. Contingent Sales post—include a home inspection contingency, appraisal contingency, and financing contingency. If major issues turn up during the inspection, if the house doesn’t appraise in the current market for at least the value of the offer, or if the buyers’ financing falls through, the buyer can legally rescind or renegotiate the offer.
There are also contingencies that require the buyer to be able to sell their home, or the seller to be able to find another home, in order for the deal to proceed. Working with your real estate agent to include any of these contingencies means that if something doesn’t go as planned, you aren’t left holding the bag, and these protections are especially important in uncertain economic times.
Get a COVID-19 Contract Clause
While standard contingencies can cover many of the issues that arise due to social-distancing requirements, market limitations, or the financial fallout of COVID-19, anyone buying or selling a home during this time should be aware that they will probably experience some delays or other hurdles in the process of a home sale.
Buyers and sellers alike can use a “force majeure” clause to address special circumstances like government shutdown orders and other events out of the control of all involved parties that can affect settlement. According to the National Association of Realtors, “a ‘force majeure’ clause allow[s] a party to suspend or terminate performance when circumstances which the parties could not have anticipated, or which are beyond their control, make performance of the contract impossible or impracticable.” In layman’s terms, the deal could be called off if conditions make it too difficult to proceed with settlement.
However, many agents, acknowledging that things might take a little bit longer in the face of closures and government restrictions, are altering the standard “force majeure” clause to specifically address coronavirus. A “COVID-19 clause” might say something like the “Buyer and Seller understand and acknowledge that the unprecedented global COVID-19 pandemic may make the performance of the Purchase Agreement within the specific timelines set forth impossible or impracticable.” This allows an extension of the timeframe, while still offering either the buyer or seller an out if hurdles to settlement become insurmountable or create significant financial difficulty for either party.
Stay Safe! Take Precautions and Follow Guidelines
Beyond legal protections, you and your real estate agent should be extra cautious and use all available techniques to avoid contracting COVID-19. Although infection rates may be peaking in Florida, the risk will not disappear any time soon, and cases could increase again as the state begins to reopen. In addition to standard social distancing practices and frequent hand-washing, over the past month agents have become increasingly savvy at navigating the home sale process with minimal interaction. The National Association of Realtors has created a thorough guide for transactions during COVID-19, but there are a few important takeaways:
Tours and open houses can be risky, but there are alternatives. Virtual tours offer realistic overviews of properties for prospective buyers. The level of detail can help homeowners eliminate unlikely candidates in advance, saving time and avoiding unnecessary home tours, which benefits both buyers and sellers. Some tech-savvy sellers are even leading virtual tours through Zoom. In Florida, your realtor may ask you to sign a special acknowledgement form about the risks of COVID-19 should you decide to continue with showings and tours.
Inspections must be done in person, but appraisals do not need to be. Inspectors can take appropriate safety measures including wearing masks and gloves and completing the inspection when no one is home. Buyers can view detailed pictures from the inspection report and speak to the inspector over the phone, rather than have in-person meetings.