How COVID-19 is Changing the Housing Market
The COVID-19 pandemic is unlike anything seen in recent American history. With social distancing the norm and millions filing for unemployment, this disease affects every facet of life and changes the way we do business.
Like many industries, the housing market is feeling the pandemic's effects, and in this article, we look at what ways COVID-19 is changing this industry.
Stated by a credit repair Chicago expert, you might remember the great recession back in 2008, which crippled the housing market. However, by 2020 the housing market bounced back and showed signs of health with rising housing prices.
With growth occurring over the past ten years, 2020 looked to be one of the strongest in recent memory until the pandemic hit and stopped the recovery in its tracks.
During March and April of 2020, we saw a decline in the number of mortgage applications. According to econofact.org, "Mortgage applications in early April were down 35 percent compared to one year earlier."
With the dramatic rise in unemployment and an uncertain future for many workers, people hold on to their money and not make large purchases, such as homes.
Even though mortgage rates are lower now, thanks to COVID-19, many lenders have become stingy when it comes to lending money because of economic uncertainty. While lenders typically ask for a 10% to 15% down on a mortgage, now, many require up to a 20% to 30% down, making it difficult for some people to get financing.
Also, lenders are more selective about lending. For example, if a person isn't working in an 'essential industry,' the bank may see their job stability as a risk.
Many realtors are seeing offers on properties to be considerably lower now than before the pandemic, making it difficult for sellers who want to get the most out of their properties. With lower offers and people having more trouble getting financing, properties stay on the market much longer now than in the past.
Because of social distancing requirements and other safety considerations, realtors and potential buyers are more cautious about showing. More and more realtors rely on virtual shows and 3D tours to show off properties, or in some instances, they may open the house and wait outside or in the car with the potential buyers taking the tour by themselves.
Many people don't feel safe living in crowded cities anymore because of the virus, so they want to move to the suburbs or rural areas. The result is that realtors have a glut of properties in the cities that they are having trouble selling.
Supply versus Demand
While the market saw inventory spikes near the end of 2019, today is a much different picture.
In many markets, housing supplies are at record lows, while demand is at an all-time high. And while this seems like it would be good news for sellers who can charge top dollar, as we've seen with lenders being more selective, sellers have more difficulty unloading properties right now.
Before the pandemic, low unemployment, a roaring economy, and low mortgage rates created an ideal housing market, thanks to plenty of inventory and buyers who could secure financing. With unemployment skyrocketing and many workers suffering from pay cuts, there aren't as many potential buyers this time last year.
Many people don't consider the housing market as the building supplies and materials required to build new homes. Many of these supplies come from China, which means supply lines for products like bathtubs, sinks, and appliances have been disrupted due to the pandemic. This disruption causes construction delays, which means builders struggle to meet the demand for houses thanks to product and labor shortages.
The Light at the End of the Tunnel
With many cities ending their shelter-in-place orders and returning to their normal lives, the housing market looks to begin its recovery. According to realtor.com, "Despite the economic slowdown and reemerging COVID19 concerns, housing indicators continue to show a steady recovery. The realtor.com Housing Market Recovery Index reached 98.7 nationwide for the week ending July 4."
Experts watch whether the high selling prices for properties will hold through the summer as more people go back to work and become more comfortable making a large purchase like a house.
Currently, the housing markets in the West and Northeast are leading the recovery. While the impacts and concerns over COVID-19 are still being felt in the South and Midwest.
Although the country has suffered economically, the economy shows signs of coming back. Even though experts agree it will take a long time before we're back to where we were before the outbreak of the virus.
If you're looking to sell a property or have one that's been on the market for a long time, consider hanging on through summer, and you may have better luck selling your house.
If you're looking to buy a home, try waiting for as long as you can until banks and lenders ease up on their restrictions, and people become more certain about their economic future.