by Dana George | Updated July 19, 2021 - First published on April 3, 2020
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The COVID-19 pandemic and a potential recession arriving at nearly the same time can feel scary, but if you're in the market for a home, you might be able to make it work for you.
The U.S. enjoyed a red-hot housing market in January and February -- but that was prior to the outbreak of COVID-19, also known as the novel coronavirus, the subsequent shuttering of businesses, and a severely disrupted economy.
COVID-19 will impact the housing market in a number of ways. First, there are the practical issues of viewing, showing and closing deals while also practicing social distancing. Then there's the bigger picture: A lack of confidence in the market, talk of a long-predicted recession, warnings that unemployment is heading for record highs, and a turbulent stock market.
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The Federal Reserve has twice cut interest rates since the start of the crisis in an effort to insulate the economy against the fear and disruption caused by widespread COVID-19 shutdowns. This sent mortgage rates to historic lows, which usually prompts new sales. In this case, it promoted a wave of refinance applications -- pushing the Fed to step in again to stabilize rates.
Mortgage rates may be low, but potential homebuyers still face more pressing concerns. With record numbers of people out of work and claiming unemployment benefits, it's no surprise that they are also out of the homebuying market.
That depends. COVID-19 has certainly made things more complicated, but the stay-at-home orders have not stopped home sales completely. The National Association of Realtors (NAR) warns that shutdowns have affected every aspect of homebuying, including brokerage operations, how listings are being marketed, and closing transactions.
NAR says that some states, such as Wisconsin and Connecticut, have made it a point to classify real estate as an "essential service" in their states' shelter-in-place orders. Other states, including New York, Pennsylvania, and Vermont do not consider real estate to be essential. And then there's California, a state that reclassified real estate as an essential service due to concerns about the economic hit of another housing crisis.
Even if real estate agents are able to continue to work, there are many other people -- like loan officers, appraisers, and inspectors -- involved in actually selling a property. Some states, like Colorado, have included title companies, accountants, and real estate appraisers on their list of "critical services," but the same is not true everywhere.
Another issue is that just because a particular business is legally allowed to continue operations, that doesn't mean everyone will do so. For example, some California real estate professionals question the health risks associated with bringing strangers into other people's homes. We can't know for certain how many home appraisers, inspectors, or moving companies feel the same way.
If you'd hoped to sell your home prior to the crisis, don't discount the idea completely. After all, competition will be lower due to COVID-19 concerns, and your home may receive more attention, as well as a better offer than expected -- even if an open house is not an option.
Similarly, if you are in the process of buying a home, the novel coronavirus does not have to stop you. Mortgage rates are low but still volatile, and you can expect them to stay that way for a while. So long as your job is secure and you have your financial ducks in a row, you may be able to snag a good deal on a property.
If you're viewing or showing a property during the COVID-19 shutdown:
Closings on the purchase of a home may be delayed in some areas. It is possible to limit the number of people at the closing through the use of electronic signatures, but that won't always be enough.
For example, sellers in Massachusetts must obtain a smoke detector certificate from the fire department prior to closing. Because those inspections are shut down at this time, homes without certifications cannot close.
If, like those Massachusetts residents, you have an issue you can't get around, ask your real estate agent to negotiate an extension with the other party (buyer or seller) and request that your lender extend your loan offer. You may have to put it off for weeks (or even months), but you'll still end up with a deal when things get back to normal.
One indication of what might happen comes from Zillow's deep dive into previous pandemics. During the SARS outbreak, the number of homes on the market in Hong Kong fell sharply, primarily because people wanted to avoid exposure to the epidemic. Still, the value of the homes that did remain on the market remained steady (possibly due to limited inventory). The same is true of the COVID-19 outbreak in China. There were fewer homes on the market, and transactions nearly ceased, but prices were not reduced much on the homes that sold.
Obviously, what happened in other countries may not reflect what will happen in the U.S. But we can still hope that the housing market might simply be on pause until the threat of COVID-19 has passed.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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