Were we in an economic bubble, were we not? Frankly, it doesn’t matter now. Stock market brokers look for excuses to start a sell-off and the coronavirus gave them one… and some. A bonafide reason to not only start a selling run, but to take caution with almost all aspects of the economy.
So will the house market follow? Well, here are the facts:
· Demand is decreasing, due to:
o The stay-at-home order, obviously.
o Employment uncertainly.
o Buyers waiting for cheaper times ahead.
· Supply is also decreasing:
o It’s physically harder to sell your home right now.**
o People don’t want strangers in their houses.
o Optimists will hope to ride this out, hoping it’s a short-term issue.
** Showings, inspections and appraisals are all allowed with caution. However, open houses are not allowed. Buyers should wear masks and gloves when entering a home. South Bay escrow volume has dropped ~50% in the last two weeks.
Buyers and sellers are both walking away right now. I’m seeing it first hand. However, there will always be people who need to sell: owners with vacant houses, stretched investors looking to offload properties, and the big one - people losing their jobs.
Unemployment alone will be the main reason the housing market follows the stock market down.
But when will it drop? Here’s the catch. It’s going to take time. The housing market trends much more slowly than the stock market in its peaks and troughs. Investors can quickly dump their entire portfolio of stocks in seconds. Selling houses takes a little longer(!) and people still need a place to live. Perhaps the biggest factor slowing price decreases in the housing market is that sellers and their agents will use comps (recent, local closed sales). I can tell you from experience, nobody thinks a house is worth more than its owner. So it takes time for an area to collectively drop in price because it takes a number of sales (and therefore time) to do so. In our last recession, the bottom of the stock market hit in February 2009. The housing market didn’t reach its bottom until February 2012, three years later!
That market drop also came with a spate of foreclosures and short sales, literally driving the comps down. Since banks can seemingly afford to this time around, they are already doing everything they can to keep people in their homes, forgiving mortgage payments for months to come. That’s another group of people that won’t sell for the time being.
So what would I do, if I were you?
As a seller, it would depend on how my current living situation stood. If I’m comfortable in my home and with my employment, I’d wait all this out. If I’m concerned about my employment or income, I would sell immediately before the reality of this situation takes hold. Maybe I’m wrong, maybe we’ll find a miracle cure, but this is just my opinion based on worldwide events and the economic fallout during this “unprecedented time”. If you do decide to sell, make sure to interview your Realtor before you sign a listing agreement to see what their new plan is.
Regardless of which side of a transaction you’re on, make sure you use a hardworking and experienced Realtor; that’s now more important than ever.
As a buyer, I would most likely wait a little while. If I really need to buy or dislike my current situation, I would be looking around and see if I could find something I like that’s been on the market a little while. It may not be a dream home, but it could end up being a great investment. Nothing motivates a seller more than being on market a while and with all the virus fears out there, I know that makes for plenty of nervous sellers. I forecast that we’re due a correction of about 15% over the coming months, or perhaps years. So if you can find something that you can get for 10% under a fair asking price, you’re winning, especially if we bounce back more quickly than I expect. Plus, rates are obviously still super low.
But what if I want to wait a while? If I’m in no rush to buy, and I’m being a bit of a shark here, I’d wait and see what the banks and mortgage associations do. As it stands, Fannie Mae and Freddie Mac have suspended foreclosures until May. But what happens beyond that? When the droves of unemployed lose the government stimulus in a couple of months? BoA is deferring payments for an undisclosed period of time. Citi has a 30-day hardship program. 30 whole days! Many banks have nothing in place. I’m sure this will change and programs will be extended, so this might take many months, but I’d watch this situation closely, because when the short sales and foreclosures start hitting, that’s when the market can really start dropping. To be clear, I’m not trying to take advantage of people losing their homes. There is nothing more saddening in this industry, but people will win and lose in these situations. That’s the capitalist system we were born in to.
Above all else, stay safe out there. Your health is more valuable than any house imaginable.
Feel free to contact me to discuss your specific situation or to create a real estate plan.