Despite what most people believe, the coronavirus isn't directly affecting the real estate market, yet... Only the overall health of the economy will truly tell us where the market is headed. 70% of the U.S. economy comes from consumer spending, and as long as Americans continue to feel strong about their jobs and income, their spending should keep our economy healthy. However, that isn't the only thing revolving around a healthy market, the strength of the real estate market is also impacted by mortgage rates. When the stock market and other asset classes start to see a lot of volatility, investors will move their cash to bonds for stability and security. As demand for treasury bonds increases, however, bond prices go up and their returns will fall. And that pulls mortgage rates down. The current stock market volatility is not the result of issues in the real estate market, but is specifically the result of uncertainty about how the coronavirus may impact supply chains and corporate earnings. While we are still uncertain, real estate may be protected to some extent because of tight residential inventory, high buyer demand, low mortgage rates, and lower prices for lumber and oil. As of this writing there have been over 10 states who ordered mandatory shutdowns of all non-essential businesses with an exclusion and limitation to restaurants allowing take-out & delivery. While the businesses involved may or may not have the capital to survive these conditions, there is no doubt that employees will be directly affected. Not only are their hours and income suddenly in disarray, but their jobs may go away altogether. And this WILL impact real estate markets. When consumers begin having less and less disposable income, their spending drops and that will negatively affect the U.S. GDP, unemployment, and Income Growth. Which directly affects the housing market prices.
Are my Rentals going to be okay? Depending on how all these forecasts play out, you could find yourself facing unexpected investment challenges, like formerly reliable tenants suddenly unable to pay rent. Lower income tenants, with little to no savings, will be impacted on a grander scale as various venues and businesses cancel events, limit hours, or completely close their doors.
But at the same time, more and more municipalities are putting eviction moratoriums in place as this crisis unfolds. The Federal Government is under pressure to enact a national moratorium. As of this writing, Los Angeles, Santa Monica, San Francisco, Miami, Philadelphia, San Jose, California, Austin, Texas, and the state of New York have either put moratoriums in place or have temporary holds on processing evictions.
If these circumstances directly affect your ability to meet mortgage payments, the Federal Housing Finance Agency has advised mortgage servicer's to offer forbearance options. These will allow borrowers impacted by the coronavirus and related safety measures (like quarantines and business closings) to take advantage of hardship forbearance.
Options include temporarily reduced or suspended mortgage payments for up to six months, although interest will accrue during the forbearance period. Arrangements often provide a reinstatement or repayment plan to make up missed payments.
Is Anything Good Coming Out of This?
The most obvious thing I see is how low mortgage rates are. Rates are likely to remain low for a while. If demand and consumer confidence remains high, that presents opportunities to refinance existing properties and to move forward on new purchases.
But be aware that there are a couple of situations where the lower rates might not be all that helpful, such as if you’re underwater on the value of a property or in a fixed-rate mortgage that’s not high enough to justify the expense of refinancing.
Conclusion The coronavirus’s ultimate impact on real estate markets will largely depend on the length of the outbreak and whether or not there is a quick recovery (with a return to overall social and economic stability)
Currently, residential investments are well positioned, largely due to aggressive action by the Fed, low mortgage interest rates, and an advantageous balance between supply and demand. This has already been seen by a rise in residential property values over the past several weeks. But some experts say that a recession has already begun that could last through the next several quarters.
As an intelligent investor, stay focused on factors that could directly affect your assets. Such as:
- Quarantines and social distancing will create slower revenue and growth in commercial real estate and may cause increases in defaults on commercial loans. Not to be confused with multifamily commercial in the B/C Class, which adversely, history has shown them keeping healthy returns from previous economic impacts. - Uncertainty around our future economic outlook may move some buyers to the sidelines (reducing demand) and may induce some sellers off the sidelines (increasing supply). - According to Green Street Advisors, real estate investment trusts (REITs), usually safe havens during stock market declines, have been surprisingly hard hit by recent volatility. - New construction could be delayed or stopped entirely by supply chain disruptions or possible labor shortages. - Travel and related industries could have a ripple effect as major airlines are grounding aircraft and asking employees to take unpaid leave. Stay tuned for more information from trustworthy sites and resources. I'll be keeping you guys posted on any major updates that come out. Stay keen & diligent and we'll make it through this crisis together! To your safety and success!