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March
18
18
The 2020 Real Estate Market During COVID-19
What Can We Learn From H1N1?
The closest epidemic the US has experienced to COVID-19 was the swine flu outbreak in 2009.
- Real estate transactions saw a slow down of 3.5%. (Assumption: The population was still recovering from the 2008 home crisis and this epidemic closely followed that before the market made a full recovery.)
- The median price of homes (not average) sold only dropped .2%.
Typically, the equity market (stock market) sees much more volatility during a crisis than the housing market. There is no doubt that COVID-19 will have a negative impact on the economy but to what extent?
A very likely scenario would be that this pandemic sends us into a recession. The problem with even using that word is that the majority of people associate a recession with a housing crisis, which couldn't be further from the truth.
Technically speaking, all a recession is by definition is two consecutive quarters of GDP (gross domestic product) slow down. And, yes, with decreased consumer spending and supply chain interruption, that is a real reality. However, when analyzing the past five slowdowns, three out of the five saw real estate values appreciating! When looking at the two recessions where home values dropped, only one saw values drop more than 1%.
There is no reason now or in the future to ever relate a recession to a home crisis again because the most recent recession was an anomaly for home values and was caused by whacked-out lending policies, better known as the housing crisis of 2008. Due to strict lending practices, we now have little to no speculative buying, tightened guidelines for developers that have slowed supply, and truly qualified buyers.
Just before this outbreak, all indicators were pointing to an extremely healthy real estate market. In fact, people looking at houses this year increased by 20% compared to last. There has been little to no speculative buying so the demand for real estate is real and stable.
On top of a great supply and demand story, the affordability of homes is far below historic norms. More Americans are realizing that rising rents and super low-interest rates make homeownership a no brainer. Today homeownership is viewed as the safest investment in the safest country in the world to invest in. We all need to be financially conservative and well equipped to provide for our families.
However, that doesn't necessarily mean putting a halt on investing in your future. Many people will still need to buy their first home, upgrade to a family home or downsize over the coming months. It is okay to do so and like any other investment or purchase, you must look for value.
The real estate market does not always follow the stock market and surely not at the same speed or velocity. People will either be paying rent or a mortgage and, in most cases, homeownership is more affordable than renting.
