How will Coronavirus impact the housing market?


With the arrival of Spring, the housing market shifts from a “buyers market” to a “seller’s market”. However, this year the blossoming flowers that can make a house look that much nicer are showing up alongside the less reassuring news of a virus circling the globe. But how will Coronavirus impact the housing market?

What is the coronavirus?

The coronavirus is a respiratory virus that has officially been declared a pandemic by the World Health Organization. It’s already claimed 3 lives here in Texas. Many events have been postponed or canceled, including our own Houston Rodeo. Many employees have started to work from home, and the stock market has dropped almost 30 percent since February 24.

How does Coronavirus impact the housing market?

A study conducted on previous pandemics concluded that while home sales dropped dramatically during the pandemic, home prices stayed about the same or had a small decrease. This makes intuitive sense because it’s harder for prices to change when there are fewer transactions. In short, previous pandemics have simply put the housing market on pause.

Furthermore, the federal government has announced a moratorium on foreclosures on any mortgage backed by Freddie Mac, Fannie Mae, or the Federal Housing Administration (FHA) that will last at least through April. This is an important measure that will keep the bottom from falling out of the housing market because of rapidly rising foreclosures, like it did in 2008.

       Recentlythe Federal Reserve announced a second emergency interest rate cut since the coronavirus outbreak, bringing the yield on Treasury bonds to almost 0 percent. Furthermore, the stock market crash can have an effect on interest rates, too.

When investors start thinking the stock market is too risky—like right now—they sell their stocks and buy bonds. The increased demand pushes the price of bonds higher. The higher the price of bonds, the lower the interest payment—called the yield—is relative to the price. When bond yields are lower, mortgage rates are lower, too.

Are we going through another recession?

It’s hard to forget the recent history, but while the 2008 financial crisis saw both the housing and stock markets drop in tandem, this was an aberration in so many ways; the housing market crash was ultimately the cause of the stock market crash. Typically the housing market isn’t tied to swings in the stock market, because people don’t buy houses purely as an investment. Housing is a basic need, and the decision to buy one is usually prompted by entering a new stage of life.

A newly married couple is moving in together and is buying a house. A couple is having a kid and needs more space to accommodate the baby so they buy bigger house. Empty nesters have more house than they need after their kids go to college, so they downgrade to a smaller house.

A stock market correction doesn’t change these circumstances for people. Even in full-blown recessions, the housing market is incredibly durable. In some previous recessions home prices have actually gone up.

So how should we approach things heading into the spring homebuying season?

The conditions were set for the spring being an incredibly competitive housing market. Inventory is low, demand was high, and mortgage rates are low. If you already own a home, you might consider refinancing or even selling while rates are this low; other homeowners are already jumping at the chance.

However, it’s worth taking recent housing market history into consideration. Two years ago, similar conditions existed in the market and many realtors believe that we were entering “the most competitive housing market in recorded history.”

The wild card in the housing market is coronavirus. If its impact is prolonged and induces even a minor recession, it could put a damper on demand—which would actually be welcome for people looking to buy a new home in particularly competitive markets. Still, don’t expect home prices to drop. It would likely just slow down the pace at which they are rising.