The Impact of the Coronavirus on the Housing Market

Public resources from the CDC:

Know the facts about Coronavirus (COVID-19)

Situation Summary Update

As the short-term effects of the Coronavirus impact buyers and sellers, questions begin to arise about how this may affect future housing markets. That’s a fair question. Although no one has a crystal ball here, it's important to look at all the data and come to your own conclusions.

Let’s review the first quarter of 2020.

INTEREST RATES

The historically low interest rates are not something to ignore. Last year at this time, interest rates were above 4%. Now hovering between 3% and 4% for most loans, buyers, or those that are planning a refinance, are saving almost $2,400 per year on the same $450,000 loan. If the average family stays in their house seven years, that’s a savings of $16,800. 

STOCK MARKET VOLATILITY

Certainly, the rise and fall of our stock market is cause for concern. Uncertainty will wreak havoc on the stock market. But, we have seen this before. In fact, here’s a chart that shows market volatility during other viruses that we have faced. 

If anything, we can see how this could be an opportunity in disguise. Most importantly, don’t sell while the market is low. Look at the history and you’ll see that we have lived through this before and, in the end, it will all work out.

When the stock market loses money, people will move their investments into treasuries. They do this because it's the safest place in the world. The yield on treasuries is very low because so many want to purchase them. They are at historic lows now. And, the 10-year treasury and the 30-year mortgage rates are symbiotic. For almost 50 years, the 30-year mortgage rate has moved in unison with the 10-year treasury rate.*

HISTORIC MORTGAGE RATES

Currently, we are at the lowest mortgage rate in years. 

HOUSING BUBBLES

As I have conversations with people, they ask how will this virus affect the housing market?

I think the better question might be, what are the long-term effects on the housing market in light of the virus? 

Experts have this to offer. In our last recession of 2008, we experienced something quite different than what’s happening now. Property owners were taking out equity and purchasing depreciating assets. However, they soon found themselves in a hardship when prices dropped. With negative equity, it made no sense to hang on to your home during this struggle, so people walked away from property. This action drove up home supply. The more homes that were available, the lower the prices dropped. 

HOUSING DEMAND AND REFINANCING SURGE

Over the first quarter of 2020, housing demand is up 20%. The desire to refinance due to low interest rates is five times its normal pace. Look at this chart below to understand how demand works.  

Young families are in great need of housing while boomers are part of that refinance surge.

Sources say that 30% of all homeowners currently have no mortgage at all. Over 50% have significant positive equity. Even if the market demand dropped, you could sit tight and not feel the need to sell due to the equity you have in your home. Therefore, supply then remains low. 

Rest assured, this is NOT the financial meltdown of 2008, and it will not have the same effect on housing.

Should interest rates go up, it would likely impact housing prices and cause them to rise. See the chart below. Corelogic, one of the leaders in data analytics, predicts home prices will rise 5.4% over the next year. 

Imagine finding your dream home and paying the same payment as before because interest rates are so low. A boomer could move from their older, two-story home, find a new single-story home, and essentially make the same payment or have a shorter term mortgage due to that interest rate change.

Renters can escape paying for “someone else’s mortgage” by purchasing while rates are low. In fact, for practically the same price as rental, they can now own!

HERE TO HELP

It's understandable that many feel frightened and confused about what will happen next, but our history and patterns show a path toward opportunity. There will certainly be some economic interruptions from the Coronavirus. 

But that disruption will soon pass in a matter of months. China reopened their Starbucks recently, and Apple reopened its manufacturing plants. Life is returning to normal in some parts of the world that were previously affected by the Coronavirus. 

If you or someone you know have some questions about the current market, please give me a call at 951-970-4771 to discuss. Or, you can visit jonesrealtysocal.com for other market insights.

Written by Liz Jones, Jones Realty Group of Southern California

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A Keller Williams Company

* Steve Harney, Keeping Current Matter. Charts and data in this article created by Keeping Current Matters.