There’s no debating the obvious tolls the coronavirus pandemic is having on the global economy, as businesses struggle and unemployment rates skyrocket. Given the last time the United States experienced a severe financial crisis—during the Great Recession which lasted from 2007-09—it seems only natural to expect downturns in the real estate market. However, there are major differences between that recession and the one we’re facing now.
First and foremost, the Great Recession was largely fueled by the bursting of the real estate housing bubble and the ensuing credit crisis that followed. This recession, on the other hand, is clearly the result of a global pandemic. So what does this mean for the real estate industry going forward? There is a lot of conflicting information out there, but the good news is that it doesn’t necessarily spell doom and gloom.
Even in a pandemic, people still need homes
Though the spring season is generally the most booming time of year in real estate, the industry’s “non-essential” status in many cities and states has put a temporary damper on buying and selling—with ”temporary” being the key word.
If anything, anecdotal evidence seems to suggest that housing prices, if not stable, might even be on the rise.
By the end of April, many sellers were still reluctant to cut prices even with widespread decreases in home-buying demand. According to Realtor.com, approximately just 4% of sellers cut their prices in the week that ended on April 25. Compare that with 5.7% during the same week in 2019.
“Volatility and uncertainty always paralyze financial and real estate markets,” Billy Rose, founder and president of a Beverly Hills luxury brokerage agency told Forbes.
“But people who were going to buy or sell two to three months ago have merely shifted their timing down the line. There may be some buyers who now can’t afford what they wanted. And there may be some sellers who will hold off selling until they perceive the market to be at a point they view as more favorable to them. But there are certain life events—like death, birth, marriage, divorce, and downsizing—which necessitate home sales. The real estate market may not fly quite as high for a while. But there will always be transactions.”
While the total listing of homes for sale may have hit a five-year low, the overall median selling price has risen. “Demand absolutely just got a kick in the gut, but at the same exact time, so did supply,” Skylar Olsen, senior principal economist at Zillow Group Inc., said, via the Wall Street Journal.
The long-term outlook on the real estate industry
Even if housing prices do experience a gradual slide going into the second half of 2020, Zillow expects prices to drop no more than 3% by the end of this year, only to bounce back in 2021. A recent forecast by the online real estate database suggested that home sales will increase by roughly 10% per month throughout 2021.
“Much uncertainty still exists, particularly with some states beginning to reopen and experts warning of a possible second wave of the coronavirus in the fall,” Zillow’s chief economist Svenja Gudell said in a statement. “However, housing fundamentals are strong, much more so than they were leading into the Great Recession, and that bodes well for housing in general.”
In fact, the Washington Post reported that the biggest changes to impact the real estate brokerage industry going forward may be a direct result of social distancing becoming the new normal. With virtual tours on the rise, many potential buyers may become more comfortable with purchasing a home without physically stepping foot in it.
Likewise, digital services such as DocuSign might permanently alter the mortgage closing process as agents and buyers make the move to signing all home buying and loan documents electronically. Only time will tell what effect these potential changes will have on job titles such as attorneys, title companies, and settlement agents.