The COVID-19 pandemic has changed the way we do business and caused economic effects worldwide — the United States is no exception, infecting more than 1.6 million and causing more than 100,000 deaths as of late May.
While the novel coronavirus is a health issue, its implications have been seen through skyrocketing unemployment rates, a taxed healthcare system, and economic strains due to shelter-in-place orders. While Americans were already deeply in debt even before the pandemic, they’re now taking on even more debt.
Clever Real Estate recently launched its COVID-19 Financial Impact Series — starting with a survey at the end of March of 1,000 homeowners and 1,000 renters — to temperature check Americans' financial health.
While the effects were somewhat fresh at that time — the pandemic was just spreading to the U.S. — survey results from the end of April were even more concerning, as some Americans have been out of work for over a month. Clever will continue its survey at the end of every month during and after the lockdown.
For now, let’s look at what investors and landlords need to know about COVID-19 and its effects on the housing market.
While some markets may be more sheltered from the effects of the pandemic than others, overall, we’re seeing buyers and sellers hold off for the foreseeable future. In March, 84% of prospective buyers were still planning to buy, but had started looking for bargain buys or postponing for just a couple months. In April, nearly 40% of potential buyers said they've stopped their search indefinitely — making them 5.5 times more likely to put a hold on their home buying plans for “the foreseeable future.”
Potential buyers may have also dipped into saving — which may have also served as their down payment — and will need to begin looking at options of purchasing a home without the traditional 20% down payment.
With renters especially hurting during these times — 64% are concerned about simply being able to pay their rent and they’re 1.4x more likely than homeowners to have lost their job — those who may have been looking to make the move from renting to buying don’t plan to anytime soon. Nearly one quarter of renters are delaying buying a home as a result of COVID-19. Fifty-three percent of renters said they're concerned that they won't be able to afford to buy a home in the future due to the economic impact of the pandemic.
One caveat is those with adequate funds who may wish to purchase a second or vacation home in case they see another wave of cases in their home state.
Sellers are also nervous to list their homes on the market— approximately 25% of those planning to sell their homes this year said they're putting off selling for “the foreseeable future” as a result of the pandemic.
Aside from the difficulty of showings and open houses while shelter-in-place orders were in place around the U.S., sellers could see a smaller buyer pool, possibly resulting in a lower selling price than they had previously expected. More than half of those surveyed were concerned about the value of their home as a result of the coronavirus pandemic. If sellers were looking to also be buyers and upgrade their home, the uncertainty in both job security and health surrounding the pandemic may account for sellers holding off.
If you’re a landlord, you’ve probably already seen that renters are being heavily affected by the effects of COVID-19. Prior to the pandemic and now, nearly 50% of renters are living paycheck to paycheck. While many have received assistance in the form of unemployment or stimulus checks, many say it’s not enough to keep them afloat.
More than 40% of respondents are currently receiving unemployment benefits, roughly 20% said they had applied for them, but hadn’t received any yet. After dipping into what little savings to pay bills over the last couple months, landlords may start to see even more tenants having trouble paying their rent.
While overleveraged landlords may have a difficult time paying their debt service if tenants are unable to pay, this may present an opportunity for investors looking to buy in or even those still looking for a new home to take advantage. Depending on how long businesses are closed or not open at full capacity will determine if tenants are able to make rent and thus, if residential landlords will need to sell off some properties to decrease risk.
If you’re an investor looking to expand, it may become a good time to purchase discount properties. Over leveraged landlords may be looking to reduce risk in their portfolio by selling some of their properties or unemployed homeowners may be foreclosed on by their lender or looking to avoid it by selling quickly.
Despite record-low interest rates, lenders have already begun tightening restrictions so loans will be harder to get for both home buyers and investors. If you do find good investment deals, be sure your cash flow is solid and provides a bit of a buffer, as Americans may still struggle to pay their rent for some time.