新澳门六合彩内幕信息

COVID-19 Makes its Mark on the Housing Market

By Greg Smersh

TAMPA (March 27, 2020) -- The coronavirus pandemic has already disrupted life as most Americans know it. Our normal events are shuttered. Businesses ranging from airlines to resorts to retailers face the possibility of failure. Stocks have collapsed over 30 percent since the virus spread globally last month, decimating some $8 trillion in shareholder value. This plunge is the steepest since 1928, and is shaping up to be one of the most damaging periods in American financial history.

The coronavirus has put us in unfamiliar territory. Essentially, economic time has stopped, but financial time has not. In other words, if we all stay home for two months, we might survive physically, but in the meantime the bills pile up. The mortgage payment is due. Or other bills are due. What's weird about this current situation is that we need massive fiscal help from Washington; we need an enormous amount of cash to allow businesses to stay afloat and to keep people from going bankrupt or getting evicted.

As the bears take over on Wall Street, analysts are weighing in with opinions on the impact that the virus will have on real estate markets. The nation, as a whole, is suffering from housing shortages, so that, along with historically low mortgage rates, would otherwise set the stage for a strong and highly competitive home-buying season. Now that we're in a deep freeze, that is highly improbable. Of course, location is a huge factor, with areas hardest hit by the virus seeing the least home buying activity.

Typically, the housing market isn鈥檛 tied to swings in the stock market, because people typically don鈥檛 buy houses purely as an investment. Housing is a basic need, and the decision to buy one is commonly driven by entering a different stage of life or for employment reasons.  A stock market correction doesn鈥檛 usually change that. When the stock market drops, investors look for safer places to park their wealth, which can include real estate.  For example, following the stock market crash of the early 2000鈥檚, investors turned to the housing market. By 2005, roughly 40 percent of home sales were purchased for investment purposes, leading to the housing bubble. Given that housing in many cities is currently over-valued, that is unlikely to happen again anytime soon.

Zillow Research recently conducted a study of past research and data on the economic effects of global pandemics (such as the 2003 SARS and the 2009 swine flu outbreaks) to help provide perspective on what the future could hold. Researchers concluded that, while home sales dropped dramatically during a pandemic, home prices stayed about the same or saw a slight decrease. This makes sense because prices are unlikely to change as much when there are fewer transactions.

Some economists believe that the coronavirus outbreak will most likely bring the housing market to a halt. What was looking to be a strong home-buying season is now expected to be anything but. Sellers are canceling their listings because they don鈥檛 want potentially infected people in their homes for an open house. Buyers are hesitating given the stock market plunge and the likelihood of a recession on the way.  Other buyers are staying on the sidelines, believing that home prices will drop.

St. Louis Federal Reserve President James Bullard estimates that unemployment could hit 30 percent.  That is higher than in the Great Depression and three times more than the 2007-09 recession. Economic activity is contracting in almost every sector of the economy and many Americans are fearful about what the changing economy will mean for their job security and financial stability. Most people who were considering a house purchase, have now put that decision on hold.

According to Scott Minerd, global chief investment officer at Guggenheim Investments, the economic pain caused by the continuing coronavirus epidemic could be even worse than the Great Financial Crisis.

"If the United States is not already in a recession, it will enter one shortly" he said. "While shutting down restaurants, schools and major events, a lot of people are going to be without a paycheck, and they won鈥檛 be able to cover next month鈥檚 rent, their car payment and their living expenses. Given that dynamic, I see this getting much worse.鈥�

Recessions normally have only a minor effect on the housing market, but the coronavirus is making life and markets anything but normal.

"I think we鈥檙e guaranteed to have a recession at this point," says Tendai Kapfidze, chief economist at LendingTree. "In the meantime, the government should extend lines of credit to lenders, so they can, in turn, grant relief to homeowners unable to make mortgage payments."

As of March 23, the U.S. government has granted a moratorium on federally-backed mortgages, and some banks are offering mortgage payment relief, but currently there is not a total national pause on mortgage payments.

The 1918-19 Spanish Flu pandemic lasted two years and swept around the globe three times. Its death rate was similar to COVID-19, for which there is no vaccine. There is a deep economic restructuring now underway and the global economy is going through a significant adjustment that will eventually reset. 

COVID-19 hasn鈥檛 hit the housing market yet, but it will.  Home prices are likely to come down in the next six months or so, and interest rates will remain low to help drive the economy out of a recession.  Because of the instability in the world, some sellers may be forced to sell at a huge discount.  For those with significant savings who know that their industry won鈥檛 be impacted by what鈥檚 going on, there should be some great buying opportunities.  Good things come to those who wait.

Greg Smersh is an Exide Professor of finance and real estate with the 新澳门六合彩内幕信息Muma College of Business' Finance Department.