The COVID-19 pandemic has already begun to influence the housing market this year. With the market in flux, it can be a challenging time for providers to make real estate decisions about buying and selling property. Here, we take a look at the latest data on residential housing valuation and consider how it may affect our partners in 2020.
COVID-19 Lowers Listings, Prices
Although new listings went up 5% when compared annually in March 2020, the rise was short-lived, with asking prices showing the slowest increase recorded in the past seven years. According to a recent analysis from Realtor.com, listings are down 45% when comparing April 2020 to April 2019. This has been reflected in markets across the country, as evidenced by the following data showing the decrease in new listings comparing April 2019 to April 2020:
- Northeast: 59.4% drop
- Midwest: 49.5% drop
- West: 44.1% drop
- South: 31.45% drop
In addition, sellers have been pulling homes off the market in response to pandemic protection measures, which means inventory has reached a historical low for this time of year. Prices have dropped in 47 out of the 50 largest metropolitan areas in the country—and some real estate analysts believe this is just the beginning of a further decline.
A new report from UBS, a global wealth management firm, linked markets that depend on leisure or hospitality industries as those most at risk for sharp drops in home pricing, as well as any areas that rely heavily on energy companies or where housing affordability was already strained. Based on these criteria, they placed the following areas in the “high risk” category:
- Las Vegas, NV
- Miami and Orlando, FL
- Houston, TX
- San Francisco, San Diego, and Los Angeles, CA
- Seattle, WA
- New York City, NY
Experts Predict Continued Decline
While there is debate over what the economy will look like by the end of the year, experts in the real estate field are encouraging homeowners to create a plan for how to manage another 6-18 months of uncertainty in the housing market. It’s possible that sellers will face an increasingly difficult market if states maintain current measures, such as prohibiting in-person showings or putting a freeze on foreclosures, making an already tight market even tighter.
With homeowners likely wanting to sell homes before prices drop even further, buyers will need to be aware of a steeper decline in prices as supply rises.
Market Volatility May Produce Another Bubble
There is debate within the real estate industry as to whether the market is set for a rebound or another crash. Optimists cite an undersupply of homes and areas with greater economic stability as factors in preventing another bubble. Meanwhile, skeptics believe the market is currently more overvalued than it was in 2007, and that consumer debt plus COVID-related economic instability will mean housing prices eventually crash.
A recent report from Fannie Mae projected that home sales will decline by 15% in 2020. This was after many expected the market to rebound following the turbulence of 2019—but the global pandemic has completely shaken the market, with recovery now reliant on the long-term trajectory of the virus. Fannie Mae predicts the market will improve as early as next year; whereas a recent analysis from J.P. Morgan predicts the 2020 market will still prove less risky than the market of the mid-2000s. Despite the disagreement among experts, one message is consistent: The future is uncertain.
Considerations For Providers
With so much unknown, it’s a crucial time for providers to consider their real estate holdings. With the potential of another real estate bubble looming, some investors are selling their real estate before prices drop and investing elsewhere.
Housing prices have increased in the short term as shelter in place restrictions are eased in certain regions, which could make it difficult for some providers to purchase necessary homes quickly. Yet, if some analysts are correct in predicting that prices will eventually drop, this could leave providers who own real estate in a tough spot.
The bottom line: If you’ve considered selling your real estate, this may be the ideal time to do so and capitalize on what your real estate is worth now. If you’ve considered purchasing, you may want to shift instead to leasing to mitigate financial risk in an unsteady market.