How Will the CoronaVirus Impact Real Estate?

I have been a real estate agent, broker, and investor since 2002, and I have seen many crazy things happen in that time. I went through the worst housing crash in the history of the United States, and I have been a part of one of the most prolific housing markets in U.S. history since then. We are in uncharted territory with the coronavirus. The virus has shut down entire states and entire countries. The scary thing is that no one seems to know what will happen. How long will things be shut down? We don’t know. How much will get shut down? We don’t know. What will happen to real estate? We don’t know.

Will the real estate market crash?

The main question most people in the real estate world are asking right now is will the market crash. My gut says the market will not crash, but no one knows for sure what will happen. There are too many unknowns for anyone to predict what will happen.

How can I think the market won’t crash when so much is going on with the coronavirus? The main reason is the real estate market was solid before all of this happened. Were prices high? Yes, but they were/are high due to strong demand and low inventory.

Real estate crashes do not happen very often. The last crash was the worst in the history of the United States. That crash happened for a number of different reasons: horrible loans, too much building, and fraud. None of those factors exist now.

There is a lot that could happen and prices could decline, but that does not mean they will crash.

The video below goes over my take on the virus in Mid March

How bad is the coronavirus?

The coronavirus is not something to take lightly in my opinion. There are people who feel it is nothing more than a bad cold and those who feel it is the end of the world and we are all going to die.

I believe the truth lies somewhere in between. The virus is serious, and it could kill a lot of people. I think we should all be taking precautions and practicing social distancing. We should limit social interactions, and those who are sick should be quarantined.

Some people think we should do more, and others think we should do less. That is where the unknowns come into play. 7 states in the United States have been put on lockdown so far, and more seem to be locking down their citizens every day. People are allowed limited movement, but most can’t work, and the economy has ground to a halt.

The scary thing is we don’t know exactly how long these lockdowns will last. It could be a couple of weeks or a couple of months. The longer they go on, the more our economy will be hurt. We have already seen the stock market crash. Will all of this bring down real estate as well?

How will the virus impact real estate?

It would seem obvious that the coronavirus would negatively affect real estate. People aren’t able to work, so how can they buy a house? This is true, but in Colorado, we are still seeing buyer and seller activity. Colorado has not been locked down either.

Houses are being put up for sale, and buyers are setting up showings. I am a real estate broker, but I mostly deal with my own investments. I bought a commercial property last week, and I sold a house flip as well. I tried to buy a couple of flips but got beat out or could not make the numbers work.

Almost everyone I have talked to wants to work. They want to make money. They don’t want to be told to stay home by the government. There are some people who want to wait and see what happens. There are some people who are hoping for a crash to get good deals. I have not seen the desperate people who could cause a massive drop in prices.

The last crash was caused by a massive amount of foreclosures. But will that happen this time?

Foreclosures and evictions are put on hold

I had to evict someone right before the coronavirus scare. I also had an eviction put on hold after evictions were halted in our area. These were not my tenants in rental properties I own but tenants I inherited on properties I just bought. My plan is to flip the properties, so I want them vacant in order to fix them up.

The government and states have pretty much halted all foreclosures as well. If there are no foreclosures, there will most likely not be a massive crash. There may be some sellers willing to sell fast for a discount, but many will simply wait. If people wait to sell their houses, it may decrease inventory even more. There could be fewer buyers as well with the scare, but the market may stay somewhat stable just with less activity.

This projection is based on the restrictions lasting 30 days…maybe a bit longer.

If the problems drag on longer and people need to sell to access money, we could see prices start to drop. If we see the foreclosures allowed again and many people lose their jobs, we could see prices drop.

What if lending slows down?

Another thing that can impact the real estate market is the availability of lending. The federal reserve lowered interest rates to 0, which most people think would make mortgage rates lower.

However, mortgage rates are not directly tied to the federal reserve interest rate. We saw rates drop to record lows for a short period of time, but then they rose! They rose because there was so much demand for refinances that the lenders could raise rates and still do as many loans as they could handle.

We were hoping to see rates lower again, but they actually rose again because the government has said foreclosures will be stopped and some borrowers may not have to make payments during the coronavirus scare.

Some banks have stopped lending because they are worried about the capital they will need if people stop making payments on their loans. They have also increased rates because there is so much uncertainty about what will happen.

If lending continues to slow down, it will hurt real estate as well because it will greatly limit the number of people who can buy a house. The buyers will be limited to investors who can pay cash or use non-conventional loans. If people have to sell, they may have to sell at a steep discount. We could see prices drop if lending stops.

The big question is if lending stops and prices drop, how long will it last? If it lasts a month, prices could pop right back up when lending starts again. If it lasts 6 months, it may be tough to recover, and we could see a prolonged drop in prices.

Housing crash

What do I think will happen?

It is so hard to know what will happen because we don’t know exactly how bad the coronavirus is or how the governments will react. If it is really bad, we could see a horrible economy for months and that could really hurt the housing market. If this lasts a month or two, we could see a temporary drop and slowdown, but we may not see significant price drops because there will still be low inventory and strong demand.

I don’t think we will see a crash, but I do think there will be a slowdown. I will keep buying properties and selling them knowing prices may be lower than they have been. I don’t want to hold vacant properties hoping things get better because there is no guarantee when or if that will happen.

Conclusion

The coronavirus will impact the real estate market, but no one knows for sure how much or for how long. I don’t think a crash is coming, but that is based on my gut feeling that we will get through the coronavirus situation sooner rather than later or at least we will cope with it and get people back to work sooner rather than later.

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