The worst global pandemic in more than a century has put more than three-quarters of U.S. residents under “Stay at Home” orders. In many states, these orders have made real estate showings and other non-essential activity illegal.
So, what is COVID-19 going to do to the housing market’s spring selling season? That’s the March through June period when more than half of all U.S. home sales typically occur, as families with kids try to move before the start of the new school year in September.
Look for the peak of the housing market’s annual cycle to be delayed, not canceled, according to Lawrence Yun, chief economist of the National Association of Realtors.
A few more kids than usual might be switching schools midstream this year, as families search for homes in the summer and schedule the moving vans for the fall, but those deals likely will still happen, he said.
“We are in uncertain times, but I do think that people who are staying at home right now, once the all-clear signal is given, will be going back into the market,” Yun said in an interview.
While there’s no good time for a pandemic, this one comes after months of a record housing inventory shortage – meaning, a lack of available properties on the market. That’s created a level of pent-up demand that pushed February home sales to 5.77 million at an annual pace, a 13-year high.
“Unlike in 2008, we don’t have an underlying problem like subprime lending, and we don’t have a surplus of supply stemming from the overproduction of homebuilders,” Yun said.
In fact, America’s housing market is undersupplied by 3.3 million homes, and the shortage is getting worse every year, Freddie Mac said in a report on Feb. 28.
“New housing supply is not keeping up with rising demand,” said Sam Khater, Freddie Mac’s chief economist, who said the shortage is increasing by about 300,000 units a year as homebuilders lag household formation.
In March, more than 180 million Americans were put under “Stay at Home” orders by state governors to try to stop the spread of COVID-19. While some states, such as California, tweaked their list of essential activities to include real estate, showings of properties plummeted.
To see what happened to the housing market after the last standstill in an otherwise functioning economy we have to go back to the fall of 2001, after the terrorist attacks on Sept. 11. The nation was hunkered down, fearing additional assaults, and the stock market was in freefall. The housing market took a hit that lasted about two and a half months, but it came roaring back with a vengeance.
Sales were depressed in September’s second half, plus October and November. However, in December, January and February home sales set new record highs in each month, NAR data shows.
Home prices in 2001 gained 6.6%, a record at the time, according to NAR. The following year, the gain in the U.S. median home price was 7.7%, another record that later was broken in subsequent years as an accommodative Federal Reserve took action that put downward pressure on mortgage rates, as is happening now.
Back then, Karen McCormack was a real estate agent near the beginning of her career – she later went on to become a broker and co-founded her own firm, McCormack & Scanlan, in Boston’s Jamaica Plain neighborhood in 2005.
What she saw in those scary days after the terrorist attacks reminds her, in many ways, of today’s situation, she said. Back then, some of the experts thought people would be less likely to purchase real estate because of the massive losses in the stock markets.
Instead, the stock market gyrations had the opposite effect. People wanted to put their money into something tangible, that even if it lost value, would still provide comfort and shelter, McCormack said. She thinks the same “flight to safety” will happen again. While unemployment is projected to reach record highs this year, the majority of people losing their jobs as the nation hunkers down are in the service sector, such as waiters or retail workers.
For the most part, they’re not people who were planning to buy houses this year. For those who have jobs that can be performed remotely, being stuck in their homes isn’t going to scare them off a purchase, once it becomes safe to move around again.
“When people see the stock market go awry, it makes them want to put their money into brick and mortar – a place they can call home,” McCormack said. While a “handful” of deals in her market fell apart in recent weeks, the majority are closing, she said.
There also was an emotional response to real estate, back in those post 9/11 days, that McCormack said she thinks will repeat: People valued home even more after seeing it become their family’s refuge.
“I thought, back in 2001, that people would be nervous, and sit tight, and not move,” McCormack said. “Once they got over the initial jolt, once they felt it was safe, they went out and bought homes. People were looking for security, and for a lot of people, that’s a home.”
The “feeling safe” part is key, and that can’t happen until reliable testing systems are in place. A lack of testing has kept public health officials from using century-old procedures to stop disease before it’s widespread: Identify infected people, track their contacts, and do more tests.
That’s how South Korea, which had one of the worst COVID-19 outbreaks outside of China, tamed the epidemic, and it’s now past its apex. Both the U.S., a nation of 327 million people, and South Korea, with 52 million residents, had their first case of COVID-19 on the same day in February. The epidemic peaked in South Korea on March 2, according to Johns Hopkins University data tracking the number of new cases around the world.
While the U.S. now has tested more people than South Korea, it lags on a per-capita basis and the roll-out of testing was delayed, giving the disease time to seed in communities across the nation. Until better testing procedures are put in place, Americans have to hunker down and act as if everybody might be infected.
When real estate activity resumes, there will be new practices in place across the nation that will allow people to view homes while respecting social distancing, said NAR’s Yun. And, the innovation that was already underway to allow buyers to view and purchase a home remotely has been put into overdrive, he said.
“There is a renewed interest among Realtors and mortgage lenders for complete virtual transactions,” Yun said. Those innovations “have been fast-tracked,” he said.