The State of the Housing Market During COVID-19
By Holly Welles
Fear abounds regarding the impact of COVID-19 on the overall US economy. No one is quite sure how far-reaching the effect might be. Some things have a ripple effect, such as results both seen and unseen in the housing industry. Some analysts predict a rebound, but others urge caution.
CoreLogic’s Home Price Insights Forecast shows home values decreasing about 6.6% by May 2021 due to the pandemic. In May, home prices increased by about 4.8% due to a combination of low inventory and delayed reaction to the government shutdown. Several factors will affect the housing market going forward as the country deals with increasing coronavirus cases, including some areas shutting back down and the looming eviction crisis.
Jobless Rates Impacting Housing Prices
Earlier in the year, the unemployment rate rose to over 13% but has since fallen to 11.1% in June. As economic activity resumes, the numbers should continue to drop. Unfortunately, some industries will have a slower recovery, such as hospitality and travel.
Even for those returning to work, consumer confidence isn’t where it was before the pandemic. People are more reluctant to make significant changes until the virus is entirely under control and the economy is on the uptick. Expect new homebuyers and those building houses to delay decisions until there is more stability. The unemployment rate lowers housing value in several ways, so expect prices to continue on a downward spiral for at least the next year.
Looming Rental Crisis
In addition to lower home prices, there is a looming crisis for renters. Whatever their reason, some tenants did not pay their landlords for the last few months. Some didn’t have income due to not qualifying for unemployment but being off work, or there were delays in getting benefits. Others received less money than they usually would. A handful decided not to pay because evictions were on hold, and money was tight.
However, as courts open back up, evictions resume. Those who didn’t pay their rent will now have an eviction on their record and may find it more difficult to find new accommodations. Where these citizens might live is a serious concern, especially for lower-income families who may not have the money to pay deposits and first and last month’s rent on a new place.
As eviction moratoria expire, people who have no chance to catch up on bills face homelessness. Landlords are in a difficult situation, as well. Many have mortgages, and their banks only allowed them to delay payments with a balloon payment due at the end of three months.
The money to pay the mortgage has to come from somewhere, so landlords with only one or two rentals face losing everything as banks move to get their money. It’s the perfect storm caused by a lack of resources that hurts everyone, from the renter to the landlord to the bank.
Low Inventory and Interest Rates
Low interest rates have kept some buyers in the market for a home purchase, even with the economic uncertainty. Interest costs are attractive and help those with lower income qualify for more of a home than they might otherwise afford. It may even be cheaper to buy than to rent and have control over rising rental fees.
At the same time, there is still a lack of inventory for homebuyers, especially in some areas of the country. Lack of available houses to buy keeps prices up as interested parties get into bidding wars to secure the home of their dreams.
Many will opt to build due to the lack of inventory, bolstering the construction market and helping keep the price for new homes healthy.
There Is Hope
Even with all the doom and gloom, there is some light at the end of the tunnel. According to the National Association of Realtors, pending home sales jumped by 44.3% in May. That might be a good sign of a housing market rebound.
The country still has a long way toward recovery, and no one is sure when the pandemic might ease. Issues with the housing market and the economy, in general, are more from the virus itself than a problem with global markets. Before COVID-19, things ticked along nicely on an upward swing. Once the threat of coronavirus eases, the economy should rebound and the housing market along with it.
Holly Welles is a real estate writer who covers the latest market trends in everything from residential to commercial spaces. She is the editor behind her own blog, The Estate Update, and curates more advice on Twitter.