March 9, 2020 / By Steven Thomas
Currently, COVID-19 is not having a significant impact on the housing market, yet its effects will eventually be felt in the real estate trenches.
The Coronavirus and Housing: Despite all the news swirling about the Coronavirus, the Orange County real estate market is still rocketing forward with an Expected Market Time of 48 days.
At first, news of the Coronavirus seemed like a distant crisis on the other side of the world. Then, at the end of January, the first case on U.S. soil was announced. It was not until the end of February when top federal health officials warned that the virus would spread in the United States.
Since then, everyone has been confronted with a deluge of information and misinformation. Many mistakenly ran to purchase N95 face masks and now they are nowhere to be found. Others are stockpiling water, toilet paper, canned goods and everyday essentials. The response has been similar to Y2k when the banking system and world economy was supposed to crash due to a computer glitch in ringing in the year 2000, which never materialized.
The Coronavirus is beginning to interrupt daily life.
As the virus began to spread out of control not only in China, but South Korea, Italy and Iran, Wall Street and financial markets around the world panicked and moved their money out of stocks and into long term bonds, United States treasuries. When that occurs, long term mortgage interest rates fall.
So, how will the Coronavirus outbreak affect housing? There is no absolute, 100% certain answer. Instead, it all boils down how long this crisis will last and how large of an impact it will have on United States soil and the rest of the world. In China, the number of new cases is dwindling, a glimpse of hope that this too will end. Currently, the data does not indicate any change in the local housing market. The supply of homes to purchase in Orange County is at its lowest level for a start to March since 2013, and demand (last 30-days of pending sales) is at its highest level since 2016. With not enough supply and strong demand, the Expected Market Time (the time between pounding in the FOR-SALE sign and opening escrow) is at 48 days, a HOT Seller’s Market and its lowest level since 2013.
As a direct result from the COVID-19 outbreak, mortgage rates have dropped to a record low and will most likely drop even further. There is a chance that they break below 3% and into the 2’s. This inevitably will provoke many more to purchase, juicing demand.
Regarding the supply of homes, the Coronavirus may inhibit some homeowners from placing their homes on the market the longer the outbreak lasts. For now, there has been no real noticeable change in the number of homes coming on the market.
As for demand, the virus could turn some would be buyers into fence sitters, not desiring to purchase in this environment of uncertainty. Yet, at the same time, many fence sitters will be replaced with more buyers looking to cash in on these record low mortgage rates. Even with an economic slowdown, ultra-low interest rates will juice demand.
Demand in the luxury ranges is a bit of a different story. The luxury market is somewhat tied to Wall Street and is a bit more vulnerable to stock drops and wild swings. Currently, the high-end data does not indicate any change, but it is something to mindfully watch. In the past couple of weeks, luxury demand in Orange County increased by 5%.
The Coronavirus will affect the housing market to some degree, but not to the extent that many fret about. Society tends to worry about the worst-case scenario and overreact. Housing will not fall off a cliff.
Worrying about the worst-case scenario is an exercise in futility. Instead, have faith that the present day’s advanced, connected, collaborative society will overcome this virus. Do not panic; instead, wash your hands frequently and be prepared for the current housing expansion to continue.
Active Inventory: The current active inventory increased by 3% in the past two-weeks.
Demand: In the past two-weeks demand increased by 4%.
Luxury End: The luxury market did not change much in the past two-weeks.