Month: May 2020

Updated April 13, 2024. Many states are loosening their self-isolation orders and are allowing people to return to work. But the road ahead for the US economy coming out of this pandemic induced recession is a long one. I obviously have many concerns about this. Hopefully, the employers have implemented the necessary procedures so that people can work together and still be self-isolated while maintaining distance between the co-workers. Let’s learn more about the unexpected COVID impact on homes.

The Good and The Bad

First, the good news. According to Myles Udland, during the transition phase, the bounce in economic activity we are going to see is now expected to be stronger than previously forecast. We are currently in this phase of the unexpected COVID impact on homes.

But in Bank of America’s view, the impact from the lockdown phase that hit the economy hardest in March and April and the return of the economy to pre-COVID-19 levels of GDP will be larger drag on the economy than previously expected.

Bank of America expects that the second quarter GDP of 2020 to decline at an annualized rate of 40%. Not good. In addition, the 40% decline is a revised estimate from BofA’s previous number of 30% GDP decline. To put the 40% decline in perspective, during the financial crisis of 2007-2008, the GDP decline was 4%. This means that the COVID-19 pandemic is possibly ten times bigger than the previous recession in 2007-2008.

Looking at the next 18 months, BofA sees a soft labor market, disinflation, and a lack of investment conspiring to keep growth below pre-COVID levels into 2022. Disinflation is what happens when price slows down temporarily. Deflation, which is the opposite of inflation, is a decrease in general price levels throughout an economy.

The news media has been covering the effects on the real estate market as the coronavirus has swept the world in the last few months. But interestingly, three surprising and unexpected situations have occurred that effect single family homes. What is even more surprising is that the mainstream media hasn’t really been reporting on these three situations. Taking all these things into consideration, the unexpected COVID impact on homes could surprise you.

Surprise #1: Dramatic Inventory Reduction

The first major surprise that has occurred is that there has been a drastic inventory reduction. The inventory is the available properties on the market for buyers to purchase. This is known as supply. This inventory reduction means that the supply of houses has dropped dramatically.

In some areas, normal sellers on the MLS market have significantly dropped. According to the National Association of Realtors, the supply of homes fell 19.7% annually to 1.47 million units for sale at the end of April 2020. Why the huge drop in home supply from the unexpected COVID impact on homes? What is going on?

It seems that once the virus hit hard enough so that lock downs occurred, what a lot of normal sellers did was to take their property off the market. They did that for a number of reasons. Some sellers didn’t want to move in the middle of the coronavirus pandemic.

Other people thought that buyers were not going to be out and about looking for a new home to buy. Others didn’t want to sell their property when they thought about all the people who would be traipsing through their home. As we all know now, a person could be infected with the COVID and not know it for days.

What does this mean to the selling of homes? As it turns out, the selling of single family homes is a huge deal. When you have to sell your property you compete against all the other similar priced houses. Let’s say that you have done your homework and know the area and the comps in that area and decide to put your house on the market for $200,000 USD. But there is another house that is identical to your property that is in just as good a shape and they are listed at $175,000 USD. What does this mean to you?

That means that any of the available buyers in the marketplace looking for a property like yours are going to go to the $175,000 listing before they are going to go to yours. The offer is going to go to the $175,000 listing first. That’s just how it is.

With a reduction in supply it makes it so much easier. Now you can ask for and get full price or even more than full price for your house. A reduction in inventory is a very good thing to have. If you sell houses this is what you dream of.

Perhaps you are thinking that it is possible that when the coronavirus pandemic wears off and people get back to “normal” life the prices of houses will stabilize.

However, we also have to consider the fact that some of the people who were going to sell decided not to. Why? They have been living in their house for two more months while self-isolating and they have decided to fix the cosmetic problems. Now they have made the decision that they are going to stay in that property and enjoy living there. Why? Because the house is all fixed up and they realize that the house isn’t so bad after all.

Maybe you have been reading the news and have heard that there is going to be a tsunami of foreclosures because of the people who have lost their jobs and are not going to be able to pay the mortgage. This may or may not happen. The foreclosure process is a lengthy process in most US states. So it takes a long time.

Many people are still in their forbearance period and they could stay in the forbearance period for quite a while. So if there is an influx of foreclosures it wouldn’t happen until the end of 2020 at the earliest. As well, many of the lenders could tack the forbearance onto the back of the loan. So it is possible that there might not be this flood of foreclosures.

Surprise #2: Increase In House Demand

Surprise two is the drastic increase in house demand. These are people looking to buy a single family home. When you think about it, it makes a lot of sense. If everyone is self-isolating at home, then people are going to want to have a real home with a lot of amenities.

People are not going to want to be in an apartment building or in a condo complex where they are right next to all their neighbors. Seems pretty logical and this is exactly what is happening. There is now a huge demand for people to have their own home.

But this increase in demand goes a step further. We are talking about people living in urban areas. Now that our society has had to shift to Zoom conference meetings as opposed to in-person meetings. Now more and more people are not commuting to work on a daily basis.

You might be one of these people as you start to get used and like working from home. As companies get used to managing their teams from home it is possible that there’s going to be less of a requirement for someone to drive into the center of a city to go to work in a big office building. It might be possible to commute from a home that’s further away from the inner city core.

What that means is that it is possible to increase demand for homes that are more suburban and even rural houses out in the country. These are homes where people have more room to do more things on their own property. As you can see already, the unexcepted COVID impact on homes is going to have a huge effect on where people decide to live.

Are you worried about unemployment as you read the newspapers? Before the COVID-19 pandemic hit, the US had hit record employment numbers. But now in the US the unemployment rate was at 14.7% in 43 US states in April, 2020. However, that means that more than 85% of the people in the US still have their jobs. Many of these 85% of people are moving towards the idea of buying a home.

As we know, we are having an affordable housing crisis in the US. There is even more of a demand on affordability and portability as you move further away from the downtown areas as you find your price point houses in the suburbs or further out. Can you see what is happening? To that affordability crisis we add a much lower supply of houses for sale combined with an increase in house demand. Wow.

Surprise #3: Rising Value Of SFH

Hopefully you came to realize the significance of what this means when you suddenly have dramatically lower levels of supply and dramatic demand. Those of you that have been following real estate probably guessed it: you will see rising real estate values.

Rising property valuations are actually happening right now. Unbelievable right?! Now it is a fact. As you know, the basic fundamentals of real estate values in your area is all about supply and demand.

Right now we have both working in our favor. Even though less people can get a mortgage loan, there’s still so much demand with the people who can get a loan versus the supply. Many experts are looking at what is happening and are scratching their heads saying they didn’t see it coming. But remember in real estate 101, it is all about supply and demand. Check out this article from The Wall Street Journal on single family homes. Here is another article from Forbes saying that the coronavirus effect of lower interest rates and commodities have traditionally been beneficial for real estate.

People are saying that the prices of houses in the future are going to have the same value as they do now or they could rise a little bit more slowly. Either way, make the most of this situation. As a seller, you cannot ask for anything better!

If you are a real estate investor or just like to dabble with properties, I invite you to read my blog on the Three Real Estate Investing Strategies That Work Every Time. I promise that the strategies discussed in this article will definitely help you increase your wealth over time.

Hopefully you gained some insight from this blog on the unexpected COVID impact on homes. Until my next blog, stay healthy and best wishes!

---

Last Updated on April 13, 2024 by Financial Goodness