How the Pandemic Is Affecting the Real Estate Market

How the Pandemic Is Affecting the Real Estate Market

Research has found that over a 150-year period (1870 to 2015), owning a home has proved to be one of the most stable and secure holdings compared to other types of investments. While offering the added benefits of providing shelter and leaving it as a legacy, residential property is generally viewed as a financial asset able to withstand most crises — even a pandemic.1

For years, homeowners in many areas of the country have benefited from sustained high prices in the residential real estate market, largely due to the low sales inventory of existing homes. In early March, the housing market appeared poised for a solid spring, particularly in light of high demand and low mortgage rates.2

But all that quickly changed once the coronavirus broke out in the United States. In almost no time, the busy spring season for purchasing and selling homes was cut short by buyers hesitant to venture out — or risk their savings should they lose their jobs — and homeowners not wanting strangers traipsing through their homes. Open houses were canceled, and virtual tours became virtually the only way to check out an occupied property. Some in the industry expect this disruption and its subsequent impact on the economy to shift housing prices into a downward trend.3

For retirees, or workers planning for their retirement, owning your home can be an asset. You can sell it if you need the equity for retirement, assuming you find a cheaper place to live. Or you can draw from that equity if need be while remaining in your home. During this complex time, you have options, and it’s important that you consider all of them before taking any significant financial action.

One of the biggest problems brought on by the pandemic is that business closings, bankruptcies and job losses mean that millions of Americans do not have the money to pay their mortgage or rent. To help provide relief, some states including California, Texas, New York and Florida have temporarily banned evictions. On the federal level, a provision in the $2.2 trillion coronavirus relief package passed in March allows homeowners with government-backed mortgages to defer payments for up to a year.4

However, that doesn’t help the long-term plight of renters — or their landlords, for that matter. According to the National Apartment Association (NAA), the profit margin for many landlords is very thin, around 9 cents for every $1. Furthermore, about two-thirds of residential rental properties don’t qualify for the federal mortgage deferral because they were purchased outright or through private loans. If landlords can’t make their payments, they may lose the property and tenants could still get kicked out. And in the end, cities and counties lose property tax revenue.5

On the commercial side, the real estate market could be impacted by shelter-in-place workspaces. After all, even if things do return to normal, now that employers and employees have sampled remote work as a viable option, it could become more commonplace. This means companies may need less office space. Is it possible we could see a glut of empty office parks and skyscrapers in the future? The same could apply to brick-and-mortar retailers, as quarantining has exposed the value and convenience of online shopping to even the most diehard mall rat.

But, as usual, where there are holes in the market, there are opportunities for investors willing to take a risk. Well-capitalized commercial real estate owners may look to acquire some of these distressed buildings at bargain prices.6

Leave a Reply