Will The Coronavirus Affect The Housing Market?

Will The Coronavirus Affect The Housing Market? COVID-19’s spread officially garnered pandemic status in mid-March of this year.

At the time of press, the United States had already lost more than 94,000 people to the novel coronavirus. While some cities are lifting their orders, many Americans have been under shelter-in-place for over two months, and over 38 million in total filed for unemployment compensation since the lockdowns were mandated.

This upheaval of normalcy and seemingly crippling uncertainty might have you thinking about the strength of the housing market. Will home prices crash like they did in 2008? Certainly commercial real estate has already taken a hit but what about residential homes?

Will the Virus Affect the Housing Market?

Is COVID-19 going to lead to another collapse?

The combination of fewer houses on the market and seriously low mortgage rates usually signify a competitive season of home-buying.

Recessions usually only slightly affect the housing market. But, as we’ve seen, the coronavirus has created such an upheaval that there’s nothing normal about life or the markets anymore.

For instance, according to Zillow, past outbreaks have ushered in dramatic drops in home sales, but home prices remained rather similar or only suffered slightly. And this makes sense when you think about it – fewer transactions don’t leave room for much bargaining. In other words, past outbreaks have only paused the housing market.

Here are three reasons the coronavirus will affect the housing market:

#1 – The Supply Of Homes Could Rise

Those homeowners who’ve either lost their jobs or some form of income due to the coronavirus could consider selling their home to raise funds needed immediately. Others might consider dipping into their equity as a means to tide over their family in the interim.

Ultimately, experts are saying that the job market is perhaps the best indicator of home sales for 2020. While you might want to sell your home for cash, someone who’d buy your home otherwise might not have that cash either.

It’s estimated that 15% of current homeowners won’t be able to make their monthly mortgage payment. If that prediction comes to pass, mortgage delinquencies could fare worse than 2008’s collapse. Even then, the peak rate of delinquency was just 10%.

On the other hand, housing and employment are inextricably linked. If people retain – or regain – employment, the housing market won’t deviate much from normal, and more homeowners could find eager buyers.

It remains to be seen what percentage of current layoffs will become permanent. A lot is riding on how much income individuals can continue to bring home, if they have a nest egg, and if they’re able to continue saving during the crisis.

#2 – Demand For Housing Will Likely Fall

Due to current unemployment levels, credit scores plummet with every missed payment. In answer to this catastrophe, banks are creating more stringent lending requirements – meaning far fewer people can qualify for home loans as in the past.

Also, more people are deciding to ride it out in hopes things take a turn for the better. This is leading to a lack of demand for new housing.

That said, real estate demand seems to be showing what looks like V-shaped recovery. This can be due, at least in part, to lower mortgage rates, the ability to shop for a home from home, and, in some places, an easing of shelter-in-place orders.

It’s more the larger, more densely populated regions that are seeing a bit of a bounce-back in terms of home purchases.

Small towns and suburbs might take awhile to see any benefits this small recovery might have. Spring is considered the season for home buying, and as local and state governments begin to ease restrictions, we could see an uptick in home purchases.

#3 – Property Taxes Will Rise

State and local governments lost a fair share of tax revenue as more and more people lost jobs and subsequently began shopping less and less. Some cities and states have lowered their sales tax rate to boost local economies, but eventually many may have to impose higher property taxes to offset the difference.

Now, this doesn’t mean that property tax hikes are certain – in fact, in some regions, property taxes may even decline. This is because many places base this tax on a property’s assessed value, then that’s multiplied by the current property tax rate. If home values fall, it’s not entirely off the mark to think property taxes could decline.

That said, the current pandemic has put many state and local governments under a financial strain. Some of them have lost their key revenue sources.

For instance, certain cities rely on public parking tolls to keep cash flowing. But many businesses remain shuttered and the majority of people are remaining at home, so with fewer places to go, most people aren’t going places that require parking fees.

Along the same lines, with more people staying at home and off the roads, not as many traffic tickets are getting issued. Sure, from the standpoint of safety, this is a good thing – but the revenue generated from written tickets is revenue that many cities depend on.

The case for raising property taxes doesn’t seem so off the mark when you also factor in the funds both cities and states are spending on health initiatives and remote learning. Many existing state and local budgets simply don’t have the ability to handle these added expenses without raising the funds somewhere.

Items like school funding are often covered by things like property taxes, it could mean that homeowners must pay more. There simply may not be any other option.

It’s not a decision that local governments will take lightly – especially with so many residents already struggling to make ends meet. The cities and states that choose to raise property taxes most likely will see some bad press because of it – but if there’s anything we’ve learned from the current crisis, it’s this: some things we may previously have deemed inconceivable may not look the same now.

Will The Coronavirus Affect The Housing Market?

While a lot depends on where you are geographically, the coronavirus has – and will continue – to impact the housing market in some respect. Even if its reach hasn’t extended to your neck of the woods just yet, you should probably brace yourself just the same.

In places where local officials didn’t take the pandemic serious enough in the beginning, you’re likely to see stay-at-home orders extended longer than they would have been if action had been taken earlier. This delays economic recovery and also the stability necessary to brace the housing market.

Add a wild-card to the mix – none of this takes into account the mortgage industry itself. While the federal government announced a year-long mortgage forbearance for those impacted by the coronavirus so they can remain in their homes, the money mortgage lenders pay to bond investors still has to come from somewhere.

Should the federal government fail to act soon enough to address this underlying issue, the mortgage industry itself could collapse, triggering a much deeper financial crisis. Should that occur, we could be facing a situation akin to that of the 2008 collapse. The coronavirus will affect the housing market – it’s just a matter of how and when.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.