Real Estate Blog

In Florida, real estate is considered an essential activity. So we still have an "active' real estate market.

However, this market is anything but normal. The COVID-19 shelter in place order has put the majority of the market on hiatus. That means less buyers looking and less sellers putting their home on the market. In addition, you have people who were buying or selling put their plans on hold.

This has immediately made buyers feel like prices should come down. But facts are Sellers are not worried at this point. They just realize everything is going to take longer. (*The week of 4/22 has shown a dramatic increase in showings. This may be a one time blip or a sign that buyers are re-entering the market)

Chief Economist of the National Association of Realtors, Lawrence Yun, still expects home prices to rise.

In the Great Recession sellers had to sell and kept reducing their prices to sell. Currently sellers are just delaying putting their home on the market instead of reducing their price. The need to sell hasn't hit the market.

Ivy Zelman, President, Zelman & Associates

“Supported by our analysis of home price dynamics through cycles and other periods of economic and housing disruption, we expect home price appreciation to decelerate from current levels in 2020, though easily remain in positive territory year over year given the beneficial factors of record-low inventories & a historically-low interest rate environment.”

Freddie Mac

“The fiscal stimulus provided by the CARES Act will mute the impact that the economic shock has on house prices. Additionally, forbearance and foreclosure mitigation programs will limit the fire sale contagion effect on house prices. We forecast house prices to fall 0.5 percentage points over the next four quarters. Two forces prevent a collapse in house prices. First, as we indicated in our earlier research report, U.S. housing markets face a large supply deficit. Second, population growth and pent up household formations provide a tailwind to housing demand. Price growth accelerates back towards a long-run trend of between 2 and 3% per year.”

Mark Fleming, Chief Economist, First American

“The housing supply remains at historically low levels, so house price growth is likely to slow, but it’s unlikely to go negative.”

Real estate is a slow moving process. A new listing is usually signed up a couple weeks to a month beforehand and doesn't show active until all the prep work is done. A closing is typically 30 - 60 days after contract. So we don't expect to see an effect in the number of listings until the end of April or later. And we don't expect to see a change in closings until May or later.

We don't expect everything to go immediately back to normal. It is going to take some time for people to accept going to into strangers home where their is a potential contagion as a home buyer or allowing stranger with a potential contagion into their homes. So we expect a slow summer at least. But there is a damned up supply of home buyers and home sellers waiting to make a move.

That being said, there will be less homes sold this year than expected.

This is the real question. If people are out of work then they won't be buying homes. If this is a pro-long occurrence then we will have a slow real estate market. If people have jobs to go back to with this ends then we should be in a better position.

"COVID-19 hit the pause button on the American economy in the middle of March. Goldman Sachs, JP Morgan, and Morgan Stanley are all calling for a deep dive in the economy in the second quarter of this year. Though we may not yet be in a recession by the technical definition of the word today, most believe history will show we were in one from April to June." KCM

But reviewing the current unemployment numbers they are still not as bad as it was during the Great Depression. And you have to remember this was a medical issue that cause the economic decline. During the great depression it was the economy that fell apart all by itself. The Bureau of Labor Statistics (BLS) reports that 90% of the job losses are temporary. Furthermore, there is government assistance now. Where during the great depression there wasn't any.

How deep will the pain cut?

Major institutions are forecasting unemployment rates last seen during the Great Depression. Here are a few projections:

• Goldman Sachs – 15%
• Merrill Lynch – 10.6%
• JP Morgan – 8.5%
• Wells Fargo – 7.3%

How long will the pain last?

As horrific as those numbers are, there is some good news. The pain will be deep, but it won’t last as long as it did after previous crises. Taking the direst projection from Goldman Sachs, we can see that 15% unemployment quickly drops to 6-8% as we head into next year, continues to drop, and then returns to about 4% in 2023.

When we compare that to the length of time it took to get back to work during both the Great Recession (9 years long) and the Great Depression (12 years long), we can see how the current timetable is much more favorable

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What type of recovery will we see this time?

No one can answer this question with one hundred percent certainty. However, most top financial services firms are calling for a V-shaped recovery. Goldman Sachs, Morgan Stanley, Wells Fargo Securities, and JP Morgan have all recently come out with projections that call for GDP to take a deep dive in the first half of the year but have a strong comeback in the second half. That being said, as time goes on these estimates may change.

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Is there any research on recovery following a pandemic?

There have been two extensive studies done that look at how an economy has recovered from a pandemic in the past. Here are the conclusions they reached:

1. John Burns Consulting:

“Historical analysis showed us that pandemics are usually V-shaped (sharp recessions that recover quickly enough to provide little damage to home prices), and some very cutting-edge search engine analysis by our Information Management team showed the current slowdown is playing out similarly thus far.”

2. Harvard Business Review:

“It’s worth looking back at history to place the potential impact path of Covid-19 empirically. In fact, V-shapes monopolize the empirical landscape of prior shocks, including epidemics such as SARS, the 1968 H3N2 (“Hong Kong”) flu, 1958 H2N2 (“Asian”) flu, and 1918 Spanish flu.”

The research says we should experience a V-shaped recovery.

Does everyone agree it will be a ‘V’?

No. Some are concerned that, even when businesses are fully operational, the American public may be reluctant to jump right back in. The return to a more normal economy can take 6 to 18 months.

As Market Business News explains:

“In a typical V-shaped recovery, there is a huge shift in economic activity after the downturn and the trough. Growing consumer demand and spending drive the massive shift in economic activity.”

If consumer demand and spending do not come back as quickly as most expect it will, we may be heading for a U-shaped recovery.

In a message last Thursday, Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank, agrees with other analysts who are expecting a resurgence in the economy later this year:

“We’re forecasting real economic growth of 30% for the U.S. in the 4th quarter of this year and 6.1% in 2021.”

His projection, however, calls for a U-shaped recovery based on concerns that consumers may not rush back in:

“After the steep plunge and bottoming out, a ‘U-shaped’ recovery should begin as consumer confidence slowly returns.”

There is no crystal ball but "major financial institutions are calling for a recovery in the 2nd half of the year". That's right Goldman Sachs, JP Morgan and Morgan Stanley all think we will be back to a more even keel in the 3rd quarter.

 

Finally an easy one. No. The last recession in 2008 was hard because the banks didn't have money to lend. This is not the case now. The last recession was caused by the real estate market. We had faulty lending which lead to a bubble in real estate values. That is not the case today. "This is a medical crisis that created an economic crisis".

Gay Cororaton, director of housing and commerical research for NAR says it will be different this time “because we won’t have the tsunami of foreclosures this time around that we had during the Great Recession, when foreclosures led to a loss in home values, unemployment, and more foreclosures that just kept spiraling.” 

"That’s because the underwriting standards were very loose in the run-up to the Great Recession, and there were a lot of risky products, such as balloon payment mortgages and a large proportion of adjustable-rate mortgages. “That is not the case today,” Cororaton says." Source: Home LIght

What if prices fall? There is a lot of "equity cushion" for people to sell without having to short sale or go into foreclosure. 58.7% of all homes have at least 60% equity. That means home prices would have to fall at least 60% for these homeowners to have to short sale or consider giving up their home to foreclosure like they did during the Great Recession. This is much different then it was in 2008.

From the Managing Editor at Home Light regarding a polling of Realtors around the U.S.:

Since the beginning of April, there hasn’t been much change in how agents’ businesses are faring.

The majority of agents still have work to do and clients coming are to them for help, just at a slower pace than is typical:

• 67% of agents describe business as slower than normal but still doing deals
• 13% say their business has come screeching to a halt
• 12% describe their business as steady or about the same as before the pandemic
• 8% say their business is actually growing despite current circumstances
• Only 0.5% say their business is on hold for now / they’ve deliberately stepped out of the market

Reports of a “seller’s market” held steady this week but are still down from March and February.

• April 15: 48% said it was a seller’s market
• April 1: 49%
• March: 64%
• February: 77%

The overall drop in seller activity appears to be slowing. 

• April 15: 78% said they’ve seen seller activity decline
• April 1: 76%
• March: 41%

The percent of agents who’ve said they’ve seen sellers take their homes off the market increased but only slightly.

• April 15: 63% said they’ve seen sellers take their home off the market
• April 1: 66%
• March: 22%

The overall drop in buyer activity also appears to be leveling off. 

• April 15: 74%
• April 1: 78%
• March: 45%

The percent of agents who’ve said they’ve seen buyers pause their home search also held steady.

• April 15: 84%
• April 1: 87%
• March: 52%

While the vast majority of agents have seen some drop in real estate activity on both the buy and sell sides, over half of buyers and sellers appear to be carrying on.
Meanwhile, buyers appear to be dropping out at a slightly higher rate than sellers, but not by much. On average across markets, agents estimate that:

• 37% of sellers in their market have dropped out
• 43% of buyers in their market have dropped out

As people look for ways to buy and sell safely while still practicing social distancing, the demand for virtual showings spiked again.

• April 15: 73% of agents have seen an increase in the demand for virtual showings
• April 1: 54%
• March: 20%

Over half of agents believe we’re already in a recession or will hit a recession before the end of 2020.

• April 15:
  30% say we’re already in a recession; 23% say we’ll hit a recession before the end of 2020
• March:
  40% said we’ll hit a recession before the end of 2020
• November 2019:
  12% said we’ll hit a recession before the end of 2020

But agent optimism has actually bounced back a bit since March.

• April 15:
  64% are extremely or somewhat optimistic about the 2020 housing market
• March:
  56% were extremely or somewhat optimistic about the 2020 housing market
• November:
  76% were extremely or somewhat optimistic about the 2020 housing market

As far as how agents are adapting to the coronavirus…
The biggest change we saw over the past two weeks was an increase in those doubling down on virtual tours:

• 84% have shut down open houses.
• 68% are leaning into e-signature and digital closing tools.
• 66% are doubling down on virtual tours (up from 55% April 1).
• 59% are replacing in-person client meetings with virtual ones.
• 56% are working with inspectors to implement new safety protocols around property inspections.
• 46% are restricting or eliminating physical showings.
• 31% are adapting to alternative appraisal methods for their clients.

*Respondents were surveyed between April 15-16, 2020, with 382 real estate agents participating nationwide.

The big question is how quickly everyone can get back to work and if everybody has jobs to get back to work to.

The other big question is how lenders will treat the time without income as qualifying. And if credit score requirements be lowered for those who were late on bills due to the epidemic.

That being said. Not every recession leads to falling real estate prices. And the real estate market is in a much better position than the last time.

How is Real estate reacting to the corona virus?

 

The New Normal in the Real Estate World

Companies, realtors, buyers and sellers all have their own ideas of the policies and procedures that need to be implemented to keep everybody safe in this Corona Virus Covid-19 environment. Nobody wants to get sick. Nobody wants to get sued for getting somebody sick.

So we are seeing the steps being taken as a "work in progress". What is instituted today might not be true 3-4 months down the road.

Is it safe to buy or sell a home right now?

Contagion is Still Possible in the Real Estate Process

What we can see for sure is that the real estate process still involves for a buyer going into a strangers home who might be contagious and for a seller having strangers who might be contagious come into your home. As a realtor we have virtual tours, 3d tours, professional photography, etc that doesn't make the home tour absolutely necessary. But we are still seeing buyers wanting to physically look at homes and take the risks.

How is the corona virus covid-19 effecting the real estate transaction?

Expect Real Estate Delays

Everybody is working from home. And some departments are half staffed. So we are concerned about how quickly lending can be done. So we suggest leaving yourself some leeway at closing and expect the other party may be doing the same. What this means is if you are buying you may not want your lease or closing date of your home to match the closing date of your purchase. Instead you might want to have extra time in your current property just in case there is a delay. Or if you are selling then you might ask for a post closing occupancy to give you extra time just in case there is an issue with your purchase.

However, there are more issues. What if the buyer, seller, lender, closer, etc become subject to quarantine or closure? What if buyer looses income or job due to the virus and/or quarantine? We at the Phyllis Frankel Realty Group have an addendum to cover these issues. You should make sure you have one and use it also.

How do I keep myself safe during a real estate transaction?

Going Online for Real Estate When Possible

• Home Shopping - Buyers are doing as much of their home viewing online before making an appointment to personal view. Sellers are doing virtual tours, 3D tours, virtual open houses and more.
• Home Showing - Only for pre-approved buyers with only buyers that are buying now. No children or friends accompanying on the showings. If the buyer prefers then the Realtor can do a facetime or similar app to do a walk through of the home for the Buyer without them visiting the house.
• Contracts - All contracts can be signed via an esign service on your phone or computer.
• Closing - Some lenders and closers are set up for online closing. However, most still require you to come in and sign. The other party and Realtors won't be in the room with you. It will be just you and the notary.

Thinking of buying or selling in this market? Please contact us to discuss.