The coronavirus pandemic has had mixed impacts on the U.S. housing market. Some buyers, disquieted over mounting economic uncertainty, will inescapably sit on the sidelines. Others see this as an occasion to acquire real estate, principally because economic fundamentals were so strong heading into this crisis.
There’s cause to be optimistic about the housing market for those contemplating investing in housing, whether single-family homes or multifamily properties.
The pandemic has not generated widespread defaults or foreclosures to date. This is likely due to the federal government’s stimulus package and several government regulations that have put a stop on evictions and foreclosures during this crisis. Notwithstanding, the housing market endures and continues to be durable.
Real estate experts anticipate that it will take an added several months to realize the pandemic’s impact on the housing market thoroughly, but to date, defaults have been few and far between – a positive sign for investors. Rent collections remain stable across multifamily property types (Class A, B, and C alike) and in markets across the country. Multifamily strides ahead as one of the most resilient asset classes within the commercial real estate sector.
The situation is comparable as it relates to single-family housing. Listing activity stalled in March and April, and stay-at-home orders made it challenging to show properties during this time. But business is picking up again, which is characteristic of pent up interest. So far, single-family home prices have steadily endured in most markets.
Who is Investing in Real Estate in 2020?
The housing market has held constant for consecutive years, and as such, there is a growing demand from various types of buyers. While most connect Baby Boomers and Gen X’ers with real estate investing, there’s been a current change with Millennials looking to invest in real estate.
Millennials, having seen their parents’ retirement accounts ravaged by the last recession, are increasingly interested in alternative investments like commercial real estate, securities, and equities. In addition to purchasing their own homes, which Millennials see as a useful tool for building equity, more Millennials invest in their multifamily properties, REITs, and crowdfunded investments instead of investing solely in their 401k.
Flatter Mortgage Rates Benefit Buyers
Virtually as soon as the national economy began to shut down in acknowledgment of the coronavirus pandemic, the Federal Reserve Bank cut interest rates. Doing so guaranteed that mortgage rates, which were previously floating close to record lows, would stay exorbitantly low for the foreseeable future. Lower interest rates, in turn, increases an investor’s purchasing power.
Initially, some worried that lenders would sideline as a consequence of the COVID-induced recession. But in practice, what we’re seeing is that banks are well-positioned to endure this economic contraction. A global health outbreak caused this global setback, unlike the last downturn – a housing crisis layered over a lending crisis. Still, a strong underlying economy persists. Banks have an abundance of capital on hand to lend, and they plan to keep doing so. In a nutshell, presently is an excellent time for an investor to secure inexpensive interest rates on new commercial real estate mortgages. Existing investors will also want to examine refinancing, in part or their entire portfolio, to benefit from today’s cheap mortgage rates.
Inventory Remains at Record Lows
Action in the U.S. housing market came lurching to a standstill in March and continued that way through April. Buyers stood by, pausing to see whether the dangers of coronavirus were real, and if so, what would impact the American economy. Many questioned whether they’d have a job the next morning. Now that several weeks have advanced, Americans seem more confident about the U.S. housing market. More than 41% of homes faced serious competition in the four weeks concluding May 10th, according to Redfin – up from just 9% in January. This is suggestive of the pent-up desire for real estate. Coronavirus or not, inventory remains at record lows, and folks are eager to buy. With such little to list on the market, it’s no wonder we see the level of engagement in today’s market.
Hot Deals for Cash Buyers
Although the lending is still active, cash buyers persevere via their upper hand. The COVID-19 crisis is still playing out, and loans can take upwards of 60+ days to close, especially when dealing with more significant commercial properties: appraisals and other due diligence takes more time during the coronavirus era.
As a result, cash buyers continue to be the most ambitious while descrying exceptional deals in the marketplace. Some sellers are prepared to take a lower sale’s price with an all-cash deal to eliminate any funding uncertainty. A second or third wave in COVID cases could prompt a reversal in lending, so sellers looking to move swiftly are enticed to all-cash buyers to overcome this risk.
Real Estate vs. Stock Market: COVID-19 Risks
With extensive economic shutdowns and COVID-induced mass layoffs and furloughs, the stock market whipsawed. The abrupt ambiguity associated with the virus-induced selloff had investors seeking to keep their powder dry. Individuals saw their retirement accounts slashed, sometimes by 25-30% or more.
Real estate has fared much better thus far. There is little correlation between the stock market and commercial real estate market, which bodes well for real estate investors looking to weather this latest recession. Home prices are proving to be durable. That’s because even when there’s an economic contraction, people still need somewhere to live – keeping demand for rental housing, in particular, high, if not higher than pre-COVID days. Multifamily housing is considered one of the least volatile asset classes.
Investing in real estate is a relatively safe haven compared to investing in the stock market for those concerned about either the short or long-term impacts of the pandemic.
Summing-up
We will see how this coronavirus pandemic will reshape the housing market. To date, the impacts have been limited. This could change, mainly if there’s a retreat in lending. But most investors continue to be bullish on the U.S. housing market, with good reason. Evidence of substantial rent collections, few defaults, limited inventory, and historically low interest rates will bolster the industry.