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Real Estate & Coronavirus...What You Need To Know!
With all of the volatility in the stock market and uncertainty about the Coronavirus (COVID-19), one of the best things we can do is educate ourselves with data and facts through research. Below is some of the most pertinent information we have found in the last few days and wanted to share with you.
Real estate sales will continue– Real estate services are exempt from the stay-at-home directive so long as individuals involved in the real estate transaction comply with physical distancing requirements mandated by the City and County of Denver. Other governmental entities have today enacted similar mandates which exempt real estate services. Ancillary services are all adapting as well to follow governmental mandates (Inspections, Lending, Appraisal, Closing & Title, etc.).
Real estate sales are still occurring– In the last 5 days, between March 19th & March 24th, 950 properties went under contract in our Metro Denver MLS system and 840 closings were recorded. As an example, we listed a house this past Friday and it was under contract by Sunday evening. We implemented a new plan/protocol for showings to protect the sellers & buyers… alleviating concerns about contracting the Coronavirus. Many other brokers are adopting similar policies as well. We will most likely see a slowdown in sales over the coming months but sales are unlikely to come to a standstill.
This is not the same as the 2008 recession from a real estate perspective. Please see below for a few examples of the differences between the housing bubble era and that of today.
Loan qualification standards have been stringent- When the housing bubble was forming, almost anyone could get a mortgage. Since then, it has become much tougher to qualify. The Mortgage Bankers’ Association releases a Mortgage Credit Availability Index which is “a summary measure which indicates the availability of mortgage credit at a point in time.” The higher the index, the easier it is to get a mortgage. As shown below, during the housing bubble, the index skyrocketed. Currently, the index shows how getting a mortgage is even more difficult than it was before the bubble.
We don’t have a surplus of homes on the market…we have a shortage- The month's supply of inventory needed to sustain a normal real estate market is about six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued appreciation. As the next graph shows, there were too many homes for sale in 2007, and that caused prices to tumble. Today, there’s a shortage of inventory which is causing an acceleration in home values. Specific to the Denver Metro area, we have been measuring inverntory in weeks instead of months. The data from February showed 6 weeks of inventory...lower than the national average of 3.1 months.
People have considerable equity in their homes- In the run-up to the housing bubble, homeowners were using their homes as a personal ATM machine. Many immediately withdrew their equity once it built up, and they learned their lesson in the process. Prices have risen consistently over the last few years, leading to over 50% of homes in the country having greater than 50% equity. But owners have not been tapping into it like the last time. Here is a table comparing the equity withdrawal over the last three years compared to 2005, 2006, and 2007. Homeowners have cashed out far less in the past few years…over $500 billion dollars less than before:
An economic slowdown does not mean we will have a housing crisis- The good news is, home values actually increased in 3 of the last 5 U.S. recessions and decreased by less than 2% in the 4th.
The real estate market of today is in a much better position to weather the storm than it was in 2008. The full impact of the Coronavirus is still not yet known…and it’s evolving every day. It is in times like these that working with an informed and educated real estate professional can make all the difference in the world. Please feel free to reach out if you would like to talk about how this may affect you and your specific situation.