Will Coronavirus Change the Real Estate Market?
With the outbreak of the coronavirus worldwide, which has sickened thousands and created panic and uncertainty in our stock market, we are left to question if the effects will extend to the US real estate market, and more specifically to our local Central Oregon real estate market.
Coronavirus Pushes Down Interest Rates
Mortgage Interest Rates have already fallen to new record lows (3.29% as of March 5th) as investors are taking money out of the volatile stock market and putting it into safer US Treasury Bonds. Historically, when bonds are strong, mortgage rates go down.
Although record low rates are bound to get some home buyers off the fence to take advantage of their greater buying power, if this volatility and uncertainty are prolonged, worries of a recession and retirement fund levels could drag down the housing market regardless of these historically low rates of financing.
According to Realtor.com® Chief Economist Danielle Hale, “If the stock market is flashing a sign that an economic slowdown is on the way, that’s when Main Street will feel it. And it could lead to a slowdown in sales.”
The Luxury Real Estate Market Could be Vulnerable
One needs only look back to the recent recession to remember how vulnerable the luxury market is to stock market drops. The reason for this is the same buyers who can afford a 1+million dollar home are the same ones with more money invested in stocks. Thus they are also the people most vulnerable.
According to Ali Wolf, Director of Economic Research at the Meyers Group, “If the stock market continues to fall, there’s going to be a lot of luxury homes for sale and not a lot of buyers looking for them.”
What’s the Future for Real Estate?
Typically lower interest rates mean lower mortgage payments which seem to have given recent home sales a boost. Rates recently ticked down to a record low of 3.29% on a 30-year mortgage as of March 5th, according to Freddie Mac.
“Buyers right now are trying to juggle whether or not they should jump in when mortgage rates are this low,” says Wolf of Meyer Research. “What looks like a home that’s out of reach may actually be very affordable on a monthly payment schedule.”
“We may see a bit of a boost in home sales in the short term,” according to Chief Economist Danielle Hale from Realtor.com®, “But depending upon what happens, it’s possible we could see a slowdown later in the Spring.”
Where do we go from here with Bend Oregon Real Estate Sales?
The stock market correction of 10+% was inevitable as coronavirus fears caused people to pull money out of stocks and put their money into safer bonds. And the stock market responded not just to the virus itself, but also to the economic impacts of those countries most affected including the world’s #1 exporter China, along with South Korea, Italy, and Iran. It will take a while to get the global economy working well in sync again.
However, there is one more aspect that comes into play here that is not being talked about much due to the panic and all the media attention associated with the virus. That is our nationwide housing shortage. Freddie Mac put out a report on March 2nd that got overlooked indicating a nationwide housing shortage of 3 million units. According to this report Oregon is the most under-supplied state, followed by Colorado, Florida, and California.
Bend has been one of the most impacted areas of Oregon due to strong immigration along with decreased levels of construction by builders who are still cautious from being hit so hard during the recession, along with lack of land and a shortage of sub-contractors. The Chief Economist from of the National Association of Realtors, Lawrence Yun, indirectly spoke to Bend’s building shortage when he commented “Many small-time builders are still out of the game. It was small-time builders in the aggregate that built many more homes than the big builders, and they’ve hesitated to get back in, even though it appears there is a money-making opportunity.”
As a result, Bend continues to have historically low inventory of new homes for sale, currently hovering at only a 2 month supply. The result of this low supply, along with high demand from people moving to Bend, has led to sharply increasing home prices year-over-year since coming out of the recession; the average active home price in bend now is at a record breaking $771,000.*
So while we will likely see a softening in home prices, especially in the luxury home market, we still have a strong demand for homes and very low supply and the economy is in perhaps the best position in the last 40 years to get through an event like the coronavirus. And though this event is being treated seriously with our government just approving 8.3 billion dollars to combat the coronavirus, there is still uncertainty as to the overall long term impacts that are certain to lead to a bumpy road ahead for both the stock and the housing markets.
Sources: Realtor.com® Trends: Corona Fears are Driving Down the Stock Market. How About the Housing Market? February 28, 2020.
Keeping Current Matters. Impact of the Coronavirus on the US Housing Market. March 5, 2020.
HW: U.S. housing market is missing 3.3 million homes, Freddie Mac says. March 2, 2020.
*Data from Central Oregon Multiple Listing Service 3-7-2020. Original blog can be read at Bend Premier Real Estate's blog.