What does COVID-19 mean for the housing market?

by | Apr 23, 2020

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There are many questions on our minds during this difficult time. And this one is particularly important to anyone who is planning on buying or selling a home soon.

Many plans have indeed come to a screeching halt as a result of COVID-19. But in some circumstances, finding a new place to live is necessary, urgent, and unavoidable.

So, the big question is, what can people in these circumstances expect from the housing market today? How has COVID-19 affected home prices or mortgage rates, and what does this mean for you?

Is it safe and smart to become a homebuyer? Or is it better to rent? 

Today, we answer many of your housing market concerns in this guide. Whether you’re a home buyer, seller, or real estate agent, read on to learn exactly how COVID-19 is impacting the real estate market.

How COVID-19 Is Impacting the Housing Market

Here’s what we know so far about this new reality and how it will continue to impact the real estate industry. First and foremost, we know that this is anything but a normal recession. 

Now it’s true that no two recessions are the same. But, even though they’re caused by different factors, they generally have about the same effect on the housing market.

One of the biggest differences about this recession is that almost all of us have been given shelter-in-place orders. As such, the government has allowed special accommodations. 

Two factors affect the housing market in two very important ways. First, millions of homeowners have recently become unemployed. Thus, they may no longer be able to afford their house payments. However, mortgage payments and evictions have been put on hold in some states so those homes that would be foreclosed are temporarily rescued.

How History Affected the Housing Market

A study by Zillow sheds some light on what we can expect of the housing market during troubled times. It found that, in previous events, far fewer homes were sold. Yet, average home values decreased only slightly. Logically, this makes sense. Prices don’t tend to change much if there aren’t many transactions. 

U.S. Housing Seems to Be Following This Same Trend

In this respect, the U.S. housing market throughout COVID-19 seems to be on par for the course. That is, we are currently seeing this same effect here. Home sales are decreasing while real estate prices are staying more-or-less the same.

Again, this makes perfect sense. With foreclosures put on hold, struggling homeowners have little reason to sell. And those who do wish to sell have little reason to hurry. 

One thing that remains uncertain is the fate of mortgage lenders. While homeowners remain safely sheltered, some mortgage lenders will feel the financial strain if they are unable to collect on many of their loans. The housing market slowdown will also take its toll on realtors and real estate agents.

The Depth of Impact Depends on How Widespread the Virus Gets

The main question you’re probably wondering is, “Will COVID-19 cause a housing market crash?” But this question is an oversimplification and cannot truly be answered. 

There’s no way to accurately predict the housing market forecast at this present time due to COVID-19 continuing to spread.

No one can tell what the future holds. But there are two things we can do. We can report what has happened so far and we can explore what could happen.

Has COVID-19 Pushed Mortgage Rates Lower?

Another thing we’ve noticed for certain is that mortgage rates have been significantly lowered. This is common during difficult or uncertain economic times. It all has to do with the stock market.

Stocks, Bonds, and Mortgage Rates

Unprecedented, world-impacting events make it very risky to invest in the stock market. As such, some investors sell their stocks and buy bonds instead. Naturally, this lowers stock value even more while increasing the value of bonds.

Then, when bond prices go up, their average yield (interest payment) goes down. Typically, mortgage rates are directly linked to the state of bond yields. In other words, when bond yields decrease, so do mortgage rates.

As for the current economy, we did see a dip in mortgage rates with the 2020 stock market dip. Though, as the New York Times reports, some bond yields increased at this time. So, while we can most likely expect mortgage rates to continue dropping, their fate is not entirely certain.

The Federal Reserve Interest Rate Cut

Furthermore, in response to the economic impact of COVID-19, the Federal Reserve has cut interest rates to 0%. Hopefully, these low mortgage rates will help mortgage lenders continue to lend money for homeowners. 

It also means, however, that they have less of a need to lend new mortgages at high rates. Thus, mortgage rates may continue to fall.

While this may sound like good news to home buyers, this same tactic contributed to the 2008 housing market crash. Specifically, it increases the likelihood of unreliable buyers borrowing subprime mortgages they can’t payback. However, today’s mortgage lenders seem to have learned their lesson, and laws have been enacted to restrict predatory lending practices that contributed to the 2008 housing crisis.

Will the Housing Market Crash in 2020?

With the US economy shaken up, the housing market is taking a toll throughout the spread of COVID-19. Want to learn more about ways to stay informed in these unsettling times? Check out our financial help center for more answers to your questions.

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