How coronavirus could impact real estate next...
Back in April, I wrote a few posts about how coronavirus could impact housing prices and rentals. I looked at what was happening in China to see how real estate could be impacted here, since China was several months ahead of us in this pandemic. And so far, we have followed a similar path, with home sales freezing up during the shut down and then surging with the reopening. And as you will see below, China is again providing a road map for what we MAY see next here at home.
Keep in mind, many analysts are still saying that more data is needed before we can see the true direction of U.S. housing prices post-pandemic, but as of this writing, prices are holding steady or increasing as buyers look for space outside of major cities.
One anecdotal thing to note: I have recently noticed some catastrophic price drops ($100,000+) on select listings in New York State. This could just be crazy sellers thinking they can get an insane payday amid the coronavirus panic and an exodus from NYC. Or it could be sellers who NEED to sell but wanted to see if they could make a little money first, and now they can't hold the house any longer.
Here are some interesting ideas I've seen on forums and read about in other places that could guide where we go next (or not):
1. Foreclosures are soaring in China.
China is now seeing foreclosures 4x greater than last year (pre-pandemic), and 2020 isn't over yet! More on U.S. foreclosures below, but I'm mentioning China upfront because again, they are several months ahead of us in the pandemic and could provide us with some leading indicators on what's next.
2. Eviction moratoriums are now in vogue.
From now on, when a recession or major 'event' strikes (ie. war, terrorism, natural disaster) every politician will be reaching for this government lever. That said, finding strong tenants who don't unnecessarily take advantage of a hand-out and who have great income is more important than ever, and so is having strong reserves for every property.
3. Evictions and foreclosures will increase here when the moratoriums end, (duh).
When part-time court houses reopen and the moratoriums all expire, we will see a deluge of foreclosures on single-family homeowners, landlords with non-paying tenants and business owners who own their workspace/restaurant/retail space. But it could take 2+ years to see the full impact of these foreclosures on housing prices.
4. Companies go permanently remote, creating competition from outside markets and salary reductions.
As I saw it put on one forum, why would a company care about Mark in New Jersey with his $2,500 mortgage and $110,000 salary, when John in Kentucky is willing to do the same job remotely for a salary of just $80,000? If this were to become a broad trend, that's bad news for housing prices in city suburbs and good news for rural and resort areas that ex-commuters can now consider!
5. Housing prices could go higher, we still have room to grow!
From February of 2012 to May of 2020, home prices rose a staggering 45%, according to the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index. How much higher can we go? Real home prices rose 75% from February 1997 to a peak in December 2005, before crashing 36% to their low in February 2012.
But this is not 2005. As I wrote back in April, home prices react differently during epidemics or pandemics versus a pure financial recession. Read about the housing behavior differences here.
That being said, we did change our buying strategy back in April, moving our focus away from renovating a luxury homes.
6. Second home/vacation home housing crash?
Right now, there is so much demand in what were traditionally resort or seasonal areas because people are working from home. (Why not work from the beach?) But what about when these people get called back to work and do not show up? (Because life is better at the beach!) Will they lose their jobs and be unable to pay for their new house? Or, will the increase to going all remote create renewed value in resort communities where people can now live and earn 365 days a year?
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