How Corona Virus Affected The Real Estate Market & How to Navigate It
Written By: Alex Knoke
COVID is a large factor to why the United States is in the midst of a recession, and leaning towards economic decline. One big factor to the recession has been the dip in the real estate market. With more people losing their steady income, it is difficult to find people willing to search for homes on the market. In addition, the economic struggle has put all housing sales to a halt. Less people are willing to sell their home during the time of an unsteady economy. While the unemployment rate lessened by four percent since the summer months, the real estate market has been making an upswing with having ready buyers. One benefit to COVID for those looking to purchase a home is that banks are willing to give out higher loans so that they can stay afloat longer, because any business is good business.
In April and May, nationwide home sales dropped to the lowest they had been since 2006 according to Charles S. Gascon, a regionalist economist in the Research Division at the Federal Reserve Bank of St. Louis. It is said the dip occurred because many homeowners were hesitant to sell in the midst of the pandemic. The delistings increased over 25% from one year ago during early March and April; as well as new listings decreasing by 40%.
As seen in the image above a large dip occurred during 2020 because of the inactivity in home buying and selling. One of the reasons that the real estate market was hit so hard was because of the deficits in jobs and the lack of income for many people. For example among low income adults, 46% said that they were struggling to pay bills and roughly 32% said they were struggling with paying rent or mortgage down payments. If someone can barely afford rent are they really going to go look for a new home? No, which is one of the main reasons that the real estate market took such a large hit during the early months of the pandemic. Normally when the existing home sales take a hit so does the median price of houses, however during the pandemic this was not the case. Even though the prices of homes did decrease, the combination of low supply and historically low mortgage allowed for prices to stay somewhat steady. A higher amount of COVID-19 cases and more restrictive covenants also lead to a drop in real estate sales.
As the end of May approached the demand for housing slowly increased again and started to make a recovery. Many suburbs increased in their housing demand because of fear of the coronavirus and the want to flee from metropolitan areas. Many were scared to wait to find a new house in fear they would catch the virus or that housing prices would increase. This led to an increase in demand for housing (especially in suburbs), according to the New York Times.
An important thing to know is how to navigate the real estate market during dips and rises and knowing when the best time to buy a house is. Before dealing with the real estate market it is important to remember 5 things according to Laura Agadoni, a real estate writer and landlord. The location and timing of buying a house are very important. Location has a big impact on the price of a house because it can’t change. Although the house itself can depreciate, the land it is on can’t. One of the best times to buy a house is when the neighborhood is still up and coming because if you wait until the neighborhood is already established as a desirable place to live it will be more expensive. If there’s no indication the neighborhood will be desirable it is a risky buy, but likely a cheap buy. You can do this by studying neighborhood trends; look at things like crime statistics, amenities, school rankings etc. If all of these are good or improving the house is worth looking at.
Another fact to know when looking for a house is you should buy when it’s a buyers market; meaning the market is favoring buyers. 2020 and 2021 have a seller’s market because the demand is up and the supply is down. This causes there to be a higher median price for houses. However, during a buyers market houses will be cheaper and will allow buyers to find a better deal. One of the last things to consider while buying houses during the pandemic is to look at employment rates and job statistics surrounding the real estate you want to buy. The uncertainty of job employment is a big risk factor when looking for a house; if you can’t find a job you can’t pay for the mortgage. In the end, some important takeaways while looking for a house you should keep in mind location, timing, how the market is doing, and unemployment rates in the surrounding area. This will allow you to safely navigate your way through the real estate market even when there are huge dips in the market like the coronavirus caused.
Works Cited
Agadoni, Laura. “5 Things You Should Know About a Real Estate Market Before Buying a Home.” Millionacres, Millionacres, 18 Oct. 2020, www.fool.com/millionacres/real-estate-market/articles/5-things-you-should-know-about-a-real-estate-market-before-buying-a-home/.
Gascon, Charles S., and Jacob Haas. “The Impact of COVID-19 on the Residential Real Estate Market.” St. Louis Fed, Federal Reserve Bank of St. Louis, 6 Oct. 2020, www.stlouisfed.org/publications/regional-economist/fourth-quarter-2020/impact-covid-residential-real-estate-market.
“The Impact of Coronavirus on the U.S. Housing Market.” Redfin, www.redfin.com/guides/coronavirus-housing-market-impact.
Kim Parker, Rachel Minkin and Jesse Bennett. “Economic Fallout From COVID-19 Continues To Hit Lower-Income Americans the Hardest.” Pew Research Center's Social & Demographic Trends Project, 30 Oct. 2020, www.pewsocialtrends.org/2020/09/24/economic-fallout-from-covid-19-continues-to-hit-lower-income-americans-the-hardest/.
Shiller, Robert J. “How to Navigate the Coronavirus Real Estate Market.” The New York Times, The New York Times, 31 July 2020, www.nytimes.com/2020/07/31/business/housing-market-prices-risk.html.
i think its interesting to see how much covid has changed things finacially, even for things you wouldnt have thought would be majorly affected by covid.
ReplyDeleteWow, I've never thought of the Real-Estate industry when I think of COVID impacts. I feel like we usually go immediately to small businesses and don't relate those to real-estate agents. I am curious as to how this will play out in the following years. Will the market boom because people are getting sick of their houses, or will renovations go up because they were available during the pandemic?
ReplyDeleteI think it's very interesting that the real estate industry is struggling right now. The deficits in jobs are really making an impact on the world economically. I know a lot of people that are now doing home renovations because they are at home and have the time to do so, I wonder if this is going to potentially impact the prices of homes in the future.
ReplyDeleteYeah one of the things that I found the most interesting while researching was seeing how the decrease of jobs caused a huge hit on the demand for houses because I think a lot of people don't put together the connections between the job market and other markets like the real estate market so it was very interesting to see how largely the loss of jobs could affect housing demand.
DeleteHow can real estate investors benefit off of the housing market starting to increase again? Is there enough demand that real estate investors can still make profit off of buying and then selling land to build on or houses that are already built.
ReplyDeleteInteresting to know the housing market was effected to the extent it was/is. My family moved this summer, and like you said, it was a sellers market at the time we listed and sold. In fact, many who toured said they were from metropolitan areas seeking to get away from the dense population and COVID-19 risks. It's interesting to actually see these broad economic concepts work in front of our eyes instead of being too complicated for us at our current level.
ReplyDeleteI am very surprised to see how much the real estate market dropped because I had heard from my parents that the mortgage rates were very low because of the pandemic, but to see how much the virus still had an impact shocks me because it is a necessity to live in a house, and therefore, to me, I would think that the real estate market would've stayed afloat.
ReplyDeleteYeah I actually thought the exact same thing, so when I saw the huge hit the real estate market took I immediately started researching why and that's when I found the correlation between socioeconomic status and housing demand. Once people started losing their jobs and they weren't making a strong source of income the housing demand took a huge hit because people couldn't think about buying a house anymore since so many of them had to first focus on finding a job.
DeleteI find it fascinating that the dip in the housing market was just that: a dip. This isn't like the drop from 2010 to 2011 where it took almost 2 years to climb out of that drop. Instead, in the span of less than a year, the housing market rose higher than what it was previously after the single largest drop in the past 16 years.
ReplyDeleteI thought it was incredibly sad how far the real estate market dropped. It was mentioned that nationwide home sales had dropped to the lowest since 2006, and that's including the 2008 market crash. That just shows you how much the real estate market had been suffering. I think something that contributes to this is the fact that people are afraid to hold open houses, due to the coronavirus. Additionally, moving presents its own set of challenges in the midst of a pandemic. Perhaps these two factors can explain more than we realize as to why the market dropped so suddenly.
ReplyDeleteTo think that the housing department quickly recovers in such a shot period of time is astonishing. Something like I've never seen or heard of before. Imagine if the dip continued or at least leveled out, but not return to what it was for a long time. How would that effect people? would that effect people?
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ReplyDeleteMy brother is currently looking for a house, but I wasn't %100 sure how bad it was or why wasn't the market so great. I thought it was a big drop that would take us a long time to recover, but I saw it was only a dip other than a drop.
ReplyDeleteI found it surprising that the housing prices remained constant in this period where people aren't buying houses. Perhaps the wealthy or those hardily affected by the lockdown took the opportunity to invest in real-estate resulting in a counterweight to the inability for most to buy a new house now.
ReplyDeleteIt was surprising to see how far the market dropped. Although the pandemic really hit hard and almost everything in the economy halted for a while, it's surprising to see that it was worse than even the housing crisis of 2008 and it surprising to see that I never really saw it in the news at all.
ReplyDeleteI knew that the economy was obviously in the midst of a recession, however, I was surprised to hear that already at the end of May the house marketing started to increase again. It makes sense that people wanted to move out of metropolitan areas and into suburbs, but I didn't realize that this started happening so quickly after the pandemic began to occur. I wonder if people knew the results of the pandemic so far, in hindsight, would they have stayed? Or would those that stayed have moved?
ReplyDeleteIt's fascinating that the (median) prices of housing was the aspect that managed to not entirely tank throughout all of this even though it still went down slightly. You mentioned that it was due to "low supply and historically low morgage," but what does that mean? Is it better to have a low supply in times where it isn't a pandemic or economic crisis?
ReplyDeleteIt surprised me how fast the stock market is recovering. Citizens wanted to secede from the city due to the pandemic but the fact that it happened so fast is shocking to me.The market hasn't dropped this much since 2006. How does the pandemic effect people already living in suburbs?
ReplyDeleteI wasn't aware there was a dip I haven't even thought of the Real-Estate industry, probably so because I'm not interested in buying or selling a house and neither are people I know. But this is still surprising to me as I have a neighbor and a couple people down the street from me that recently sold their home. It still surprises me that only two months after quarantine was put into affect and the pandemic hit is when people started to move. I'm assuming they though the summer was just going to fix it, or it wasn't going to be around long. But I can imagine that people in busy cities wanted to be isolated a bit more and safe. So that is probably why it was only a dip and not a huge drop. I could imagine as well with some families that have grandparents in their homes and have little kids may have had to find another home for them because they didn't want to be exposed and risk it.
ReplyDeleteIt was surprising to me to see how much to stock market fell, and then how much it started to increase again just only after a couple months. I was also surprised to read that Covid-19 also affected the real-estate industry. I didn't think that people would move out of the big city areas and into the suburbs so fast as well. If we knew what Covid would've turned out to look like and how it would affect people ahead of time, I wonder what our economy would look like and if it would've decreased at all.
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