RealtyBizNews - Real Estate Marketing and Beyond
Real Estate Marketing & Beyond
Home » Housing » US Real Estate » How the U.S. Housing Market Might Be Impacted by COVID-19

How the U.S. Housing Market Might Be Impacted by COVID-19

By Regina Gables | March 27, 2020

In spite of the damage caused by the Great Recession, the U.S. economy has witnessed continued growth for the past decade. However, with the surge in the number of global COVID-19 cases, several sectors are now feeling the economic impact of the pandemic.

The housing market is one major sector that’s poised to be hit hard, even though it has enjoyed a good stretch of growth over the last 12 months. And with the crucial summer season coming up, COVID-19 seems to have arrived just in time to crash the party.

It’s worth noting that the world is big on construction, with up to 50% of the world’s steel being used for infrastructure projects, including buildings. Annually, U.S. imports include an estimated $20 to $25 billion of steel, with some local home builders starting to experiment with the material for housing starts. In January of this year, U.S. housing starts rose by 39.16% from 1.149 million in January 2019 to 1.624 million in January 2020. In February, however, this number dropped to 1.599 million units.

Despite this drop, the year-over-year growth curve has followed a generally upward trajectory. In February, building permits for privately owned houses reached 1.46 million, representing a small 5.5% decline from January but a 13.8% increase from February 2019. This continued growth has been great news for some, such as lineworkers (who install underground lines, meters, and more for utility and energy companies). But what precisely is the reason for this sustained long-term growth?

One major factor could be lower mortgage rates. Following cuts in Federal Reserve interest rates made three times in the last year, mortgage rates have subsequently fallen. The 30-year, 3.65% fixed mortgage rate fell from its 4.94% peak in November 2018 -- and homebuyers took advantage of the favorable lending terms.

Another possible factor is income growth, which has helped boost the demand for newer and larger homes. Additionally, a scaling back of deductions in the tax code has led to lower income taxes, which might hurt the annual federal revenue collection of $1.688 trillion but promote homeownership.

Now, as the world grapples with the COVID-19 outbreak, many experts have relayed their fears of the subsequent economic fallout. Mark Zandi, a chief economist at Moody, estimates that the U.S. now faces a 60% chance of a recession. Chief Economist Lawrence Yun of the National Association of Realtors also told Chicago Agent Magazine that in the last month, the odds of a recession have escalated to 40%, down from 5%. Some Goldman Sachs economists argue that the recession is already happening.

Lawrence Yun shared his input on how the COVID-19 outbreak could potentially throw a wrench in U.S. home sales amounting to a 10% effect. He points out that the main reason for this drop is decreased consumer spending on homes, as consumers shift financial priority towards essentials. During times of a pandemic, the demand for luxuries such as recreation and arts falls sharply, which also impacts the U.S. housing market. The lingering economic uncertainty makes people less likely to place down payments on a home.

There’s further bad news for the U.S. housing market. Pre-COVID-19, house sales were already expected to decline by 1.8%. Now, JP Morgan estimates that the U.S. Gross Domestic Product (GDP) could shrink by 2% in the first quarter and 3% in the second quarter. If the outbreak fails to subside soon, the situation might get worse than the 2008 recession.

The stark reality of the situation is that things look quite bleak. According to the National Association of Realtors, almost half of realtors reported a decline in homebuyers’ interests -- a number that had tripled since a survey done a week prior. Homebuyers are simply less confident in the direction of the economy. Strict measures to contain the spread of COVID-19, including social distancing, are also causing a high level of caution among industry players.

Some experts, however, see a glimmer of hope. Towards the end of 2007, the average American only had 3.6% savings of his/her income. When COVID-19 came knocking, households had savings of 8% of their incomes and household debt was at an all-time low of 96% of the GDP. Higher savings and lower debt might be a reason for cautious optimism.

More good news for now, at least, is that a fewer number of listings coupled with an existing housing shortage means steady home prices. Once the economic quarantine lifts, the temporary softening of the real estate market will likely experience a strong rebound. A sufficient supply of home units will be critical to meet the prevailing suppressed demand.

With that said, the situation will likely get much worse before it gets better. Massive layoffs, bailouts, and bankruptcies point towards less optimistic times. How then should industry experts respond in the coming months?

The first response should come from realtors who must stop open houses. It’s a tough ask to sell a home to buyers who can’t physically see it, but in the current circumstances, it’s not worth risking the buyer’s (and your own) health for the sake of an open house. Digital tools such as virtual tours are now the best bet for any real estate professional.

If you’re a realtor who’s used to driving clients around or a home buyer who’s used to moving around looking for the best-valued houses, it’s best to put it on hold. If you must see the property, then arrange how you’ll meet your realtor at the premises rather than driving together. Carry hand sanitizer and try as much as possible to maintain social distancing. It would also be a good idea to sanitize surfaces such as door handles regularly.

For brokering companies, it would be wise to implement a “stay-at-home” policy for all workers who exhibit symptoms of illness. If your firm has over 50 staff members, implement a remote work policy to ensure you meet the CDC’s recommendations. Cancel in-person meetings and make use of virtual meetings as much as possible.

COVID-19 is here and nobody knows how long it will last. What is certain is that the U.S. house market faces turbulent times ahead. Currently, the market is shaky, but the best and possibly strategy is to wait it out and observe how the market responds. Patience might just pay.

Photo by Macau Photo Agency on Unsplash

Regina Gables is a Realty Biz News Contributor and a freelance writer. With a background in Journalism, she enjoyswriting on real estate topics such as home buying, real estate technology and opinionated editorials.
  • Sign up to Realty Biz Buzz
    Get Digital Marketing Training
    right to your inbox
    All Contents © Copyright RealtyBizNews · All Rights Reserved. 2016-2024
    Website Designed by Swaydesign.
    linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram