May 11th, 2020 2:14 PM by Gregg Mower
I have heard that some people are worried about the future value of their homes amidst this pandemic. I am hear to tell you that in my 35+ year stint in the mortgage and Real Estate industry and with my degree in economics I have never seen anything like this. I saw the stock market crash in 1987, the financial meltdown of 2006-2010 and various different corrections to the markets over the years. This was sudden and could not have been foreseen, unlike these other crisis’ this one came when an otherwise healthy world economy was doing well. Shutting down the economies across the world is something we have never seen before and really hope to never see again in my lifetime. It is going to take a bit to get the economies up and running again not for lack of desire to get up and running again but the fear of catching what has been advertised as a deadly virus, whether you believe it or not.
We all know the toils and the riffs of this virus and I am not hear to tell you what to believe but to show you facts from an economic point of view of the housing market. The housing markets are all dependent upon demand, demand to buy and sell. If we look at Real Estate from a demand side you can see in some areas have pent up demand, meaning that buyers have been sitting on the proverbial sideline waiting to buy until the virus threat has subsided. This holds true for potential sellers as well. The homes that are being listed during this time come with several guidelines in order to show them, so buyers and sellers may be set back with the showing guidelines. The changes to show homes are that a Realtor and the people looking at a house must wear mask and gloves, the Realtors has to call the listing Agent to obtain a special code to show a house so it can be tracked from the central Metrolist computer system. These are new rules and are not too bad to show a house and home sellers should be comfortable that there won’t be any residue, if you will, from people looking at their homes.
I think the biggest challenge the Real Estate industry will be to get potential home buyers qualified for a home loan coming out of this crisis. Interest rates are great and that will not be the problem it will be the job losses that may hold down demand for buyers to buy. Also those folks that let their credit go during the crisis will inhibit some potential home buyers from buying a home. An economy is dependent upon people working and when a mass number of people found themselves suddenly laid off from great paying jobs those people will not feel comfortable going out and buying a home very soon after they go back to work. On the other hand those that have been working from home and may live in a city may want to move out from the big cities to get away from overcrowding and may be looking to move to the outlaying subdivisions figuring working from home away from the big city may be a better alternative. That would create listings in the cities and demand for housing in the suburbs.
Home prices or values are based on demand and that will vary from town to town and city to city. Housing prices have not been affected yet by this pandemic, other than Real Estate sales as everything else during this crisis basically stopped or paused as a better hopeful word to use. To view the Real Estate Industry as paused is far easier to digest than to say it has stopped, as it has not stopped. We are, in fact, we are starting to see the pent-up demand from both sellers and buyers. As the shelter in place orders drag on, especially in California, people are beginning to push back from the order and go out and look at homes and list homes for sale. We have seen an increase in this activity in the last couple of weeks and our clients are telling us that they are more than ready to get moving rather it be buying or selling. No one knows what will happen with jobs but it is a fact that the longer this goes on the more job loss there will be as employers just can’t keep all the staff they had if the demand for their product has not come back.
So time will tell what will happen for sure, but I have some ideas and areas in the economy that I have been watching to get a handle and a pulse on the market. I see pent-up demand to hit first with an initial push to buy homes and sell homes. Once this initial demand wears off it will depend on the job market to dictate who can buy and who can’t. The more people that have jobs and feel comfortable with buying a large purchase such as a home will help the overall economy. Home buying and selling also creates jobs in home improvement areas such as contractors and home improvement stores. We have already seen a increase in demand at home improvement stores, but not sure yet if that is to improve their home to live longer in or to improve it to sell it. I also see that those folks that have been locked up in their homes in the cities getting tiered of the small confined space and may want to move to the suburbs where there is more space for a family to move around. I see Real Estate sales as gaining momentum as we are slowly released from the stay at home orders or as people become more frustrated with them. NO matter how you feel about all this virus stuff Real Estate will be bought and sold during all this and after all this.
I don’t see values declining the way they did during the financial crisis of ’08-10 as the reason for that decline was the weakness in financial markets and lack of liquidity. Meaning that the reason for the decline in values during that crisis was due to the evaporation of products that allowed people to buy a home with little or no money at all and when it was determined that the holders of those mortgage notes were not solvent a massive sell of occurred. Once the financial markets started to fail during that crisis and people ended up with negative equity in their homes they just let them go to foreclosure. Since then we have put some stops in the lending world that requires people to actually fully qualify to buy a home before the can buy a house, unlike the prior crisis. So in this health crisis we are not seeing anything like the financial crisis as people that own home now had to qualify for it and are more financial stable than before. However, we do have to look at all of those people that have lost their jobs during this crisis. This will be the single biggest factor in this health crisis verses the financial crisis. So the longer this goes on the longer it will take to see what will happen to values, but in my opinion, I think initially we will see an increase in demand then a slight drop off in demand until we get back to a more full employment situation like we were before this crisis. I see a steady or flat Real Estate market moving forward as people always need housing. I do not see a large decline in values, especially in California, as I see the types of jobs to where people make enough money to qualify to buy a house still here as those folks are working from home where in the last crisis we had jobs evaporate not shift like we see here. The future remains to be seen but I like to be an optimist on this as I believe people are resilient and will come out of this stronger and smarter. As usual if you need help with qualifying for a home loan or buying or selling Real Estate call us we are here for all of your Real Estate needs (916) 672-6130.