COVID-19 vs Housing Market

The COVID-19 pandemic is unprecedented and we have never seen anything like it before. The pandemic has hit us right at the start of the booming spring housing market. No one has a magic 8 ball and knows where all the pieces will fall when this is all over. However, we can look at past similar events and analyze how they affected the housing market to give us some idea of where we are headed.

We can take some comfort knowing the Federal Government are taking initiatives and putting actions in place to avoid another 2008 financial crisis. 

The big burning question for some people though is, will this pandemic cause my home value to plummet?

Before we can answer that question, we have to take a step back and consider what’s going on now, and what occurred during 2008. There are so many differentiating factors between the two events.

First, the housing market is in a stronger position to weather this storm than it was in 2008. People are borrowing 1/3 of the amount of money than they were in 2008. 

Inventory level, or homes available for sale, nationwide in 2008 were 3x greater than they are now. But, demand back was steadily falling. From a supply and demand perspective, higher supply and lower demand equals drop in value.

Homeowners now are making smarter choices to protect their largest asset, their home. They are borrowing much less equity. Right now 30% of homeowners nationwide don’t have a mortgage on their homes and the remaining 63%, only ¼ have more than 50% of equity in their homes.

With this much equity in homes nationwide, people aren’t going to be running away from that so easily, which will keep supply low.

With supply low, the other element is demand.

Mortgage rates are still at an historical low.

Federal government just announced 90% of homeowners nationwide are going to be exempt from foreclosure for at least the next 60 days, including those with government issues loans, like FHA and any mortgage debt backed by Fannie Mae and Freddie Mac.

However, if possible still make mortgage payments on time because this doesn’t eliminate your requirement to pay your mortgage, it rather refers to the future.

Now, let’s look at three similar historical events and the impact we saw them have on the housing market.

  1. crash in the early 2000s,
  2. 9/11
  3. Of course, the 2008 housing market crash

The crash and 9/11 are external events which inflicted temporary fear into the consumer just like the COVID-19 pandemic is right now.

For several years following the crash and 9/11, even in the midst of a huge stock market adjustment, home values still appreciated steadily on average.

However, the 2008 crisis was an internal financial failure of many things. The three years following the start of the great recession, while we saw a similar drop in the stock market, home values steadily decreased until they started rising again in 2010 and 2011.

Internal and External events have different effects on the housing market.

We can also take a look at the last five recessions in this country dating back to the early 1980’s.

According to some economic experts now, we’re either in a recession right now, or we will be heading into one, over this pandemic

During the past five recessions, 1980, 1981, 1991, 2001 and 2008 home prices only decreased twice, in 1991 only 2%, and the largest of course being in 2008, at 19%.

Overall, what we can take away from this is while we are uncertain of how the COVID-19 pandemic will affect the housing market, we can conclude it most likely will not have the same impact as the 2008 financial crisis. Instead, it will most likely have a similar effect on the market as 9/11 and the crisis had. Low supply and high demand, keeping home values healthy and steady.

If you’re debating on entering the housing market right now, but have questions or concerns, please don’t hesitate to reach out to us.

Above all else, we care about the wellbeing and health of the team, clients and community. Please continue to follow health and safety protocols.

Be Safe. Be Well. Stay Healthy

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