Coronavirus and the real estate market: An investment guide

Coronavirus_Realestate_market

When demonstrated by the global pandemic currently playing out with the Coronavirus, we are living in unpredictable times. The US economy as a whole is essentially at a standstill, as local governments have issued “shelter in place” orders to fight the spread of what has been dubbed COVID-19. With a flood of Coronavirus news, all we’ve been accustomed to in our everyday lives has seemingly changed overnight. With the economic future of the country still uncertain, many wonder “What will happen to the real estate market? While no-one can predict the future, I’ve been investing successfully in up, down and flat markets for over 15 years.

While the answer to what is to come is not clear, there are several strong signs that immovable property is still an extremely viable investment. At the same time, we saw volatility in other investments including the stock market, which was witnessing massive drops in the face of historically high numbers of unemployment. The real estate sector has stayed remarkably stable in a world full of questions, and looks perfectly capable of helping investors survive COVID-19’s storm onset.

Keep on reading for our expert coronavirus analysis and the real estate market. Why is a good time to invest in real estate right now?

A lot of people begin to see that depending only on a job is a very risky place.

Not only does the promise of an investment in real estate get rid of being reliant on a 9 to 5 job, but the evolution of today’s economy appears to generate prospects that investors have not seen in years. In the light of recent events, investors should expect a range of optimistic factors to be operating in their favor in the near future, including:

  • Lower interest rates which can raise purchasing power and optimize returns.
  • More chances to buy distressed assets and increase profit margins.
  • Cash offers that allow investors to navigate around timely bank transactions that are overburdened.
  • Short-term price volatility potentially leading to lower acquisition costs.

Although these are just a few of the reasons why the current market is attractive to both new and experienced investors, they are far from being the only reasons someone should consider investing in real estate. The real estate investment world is so attractive, in fact, there is one more primary reason: the potential for long-term financial freedom. History has taught us that real estate is at the disposal of investors as one of the largest wealth-building vehicles.

Three of the U.S.’s last five recessions witnessed home prices rising 1.9 per cent – 4.8 per cent on the rebound. If the economic impact of the coronavirus follows a similar pattern, when the economy stabilizes again, we may be prepared for a strong rebound.

Furthermore, for more than a decade, home flipping profits have increased year-over-year. The latest Attom Data Solutions Home Flipping Report highlights the success of real estate investors as recently as last year, reporting that homes flipped in the third quarter of 2019 generated a gross profit “up 1.8 percent from the previous quarter and 3.5 percent from a year ago.”

Real estate has shown that it can help hard-working investors in any market achieve financial success; up or down. Whether homes continue to appreciate or are caught in a downturn, there is a strategy for investing to maximize any situation. That means plenty of investors will find the market today perfectly suited to a number of exit strategies, and there’s no reason you couldn’t either.

Coronavirus and the real estate market: An investment guide

Coronavirus Trends in Real Estate
The full impact of the Coronavirus has yet to be witnessed, but we’ve seen some staggering insights after a month of watching the new market take shape. The U.S. especially saw a record number of citizens file for unemployment. As of April, MarketWatch reports, “A few 3.8 million American workers who have just lost their jobs applied for unemployment benefits last week, bringing a record number of layoffs to about 30 million in a month and a half during the coronavirus crisis.”

While many of these individuals will be looking to find new employment when the economy begins again, we are still more likely to see an explosion of economic recoil into foreclosure operation. Yet while the whole country is feeling the impact of COVID-19, certain trends in real estate are already beginning to emerge.

Here are some of the trend markets with Coronavirus and the real estate market already see:

  • Coronavirus And Mortgage Prices: In an effort to encourage further sales, mortgage rates have plummeted.
  • Coronavirus and foreclosure rates: While it is too early to say what the Coronavirus currently means for the foreclosure industry, there is likely to be a spike in filings once government forbearance programs run their course.
  • Coronavirus And Real Estate Closings: Banks and creditors are already anticipating delayed closing times due to lack of workforce available.
  • Coronavirus And Real Estate Prices: Prices still have a lot of uncertainty to encounter and may drop in the short term, but the lack of inventory is more likely to continue to drive up prices.

Coronavirus And Hypothecary Prices

The Federal Reserve took immediate and unprecedented steps in a bid to reduce the financial effects of the Coronavirus and fuel future transactions. The Fed dropped its benchmark interest rate to 0.0 per cent no more than halfway through March — its lowest level in half a century. The move was designed to boost the economy and rescue one of history’s longest-running bull markets.

Turning the benchmark index to zero will benefit the broader economy outside the mortgage industry. On 10-year Treasury notes, mortgage rates tend to mirror the yield more than the Fed’s benchmark indice. As a result, interest rates on mortgages were already low due to the downturn in the market. So it is not only the Fed’s decision to drop its benchmark index to 0.0 percent that caused mortgage rates to fall in March, but the unique combination of Treasury notes, the new low bar set by the benchmark index, and the state of the national economy.

As social distancing continues and orders for “shelter in place” remain in effect, mortgage rates can go down even further. Although there are already record lows, there is no reason why mortgage rates could not drop as low as 3.0%. Although no one can tell precisely where mortgage rates will be in a week’s time—let alone a couple of months from now—it’s fair to believe that they’ll be quite attractive.

Attractive mortgage rates have persuaded traditional buyers to buy homes for years, raising the question: What does the prospect of lower rates mean for investors in real estate?

Investors who stand to most benefit from the interest rates of today are those with long-term intentions. In particular, buy-and – hold investors are in a great position to capitalize on the low mortgage rates arising from the volatility in the market today. If they can refinance to today’s rates or purchase a new loan with relatively low borrowing costs , lower mortgage rates would certainly lead to investment properties’ long-term profit margins. Those seeking refinancing would be wise to lock in rates if they continue to decline over the next few months.

Impact of Coronavirus on Foreclosures & Evictions

While the fall in mortgage rates is attractive to buyers and refinancers at the moment, not everyone looks at mortgages from the same perspective. What about those who can’t afford to pay their mortgage because of the hardships the Coronavirus has already brought on?

Some people are unfortunately being negatively impacted by a downturn. Whether that means being furloughed or losing a job altogether, the resulting joblessness could force millions of Americans into financial hardships. Fortunately, help is on the horizon: a number of government-sponsored firms have been instructed to put a moratorium on mortgage payments in the event of financial hardships for borrowers.

For example, because of the national coronavirus emergency, Fannie Mae and Freddie Mac were ordered to suspend all foreclosure actions and evictions for at least 60 days. To be clear, the suspension of the process of foreclosure applies only to certain loans backed by the government. Fortunately, this moratorium (including VA loans and those backed by the FHA) will help most homeowners in the US.

“This suspension of foreclosure and eviction enables homeowners with an Enterprise-backed mortgage to stay in their homes during this national emergency,” FHFA director Mark Calabria said.

The Housing and Urban Development Department has also announced that they will do their best to ease homeowners and renters.

These actions will provide short-term relief to a lot of renters and homeowners, but they may give a false sense of security at the same time. While hypothetical programs will prevent financially strapped homeowners from losing their homes for now, they will not last forever. Many that were unable to meet their mortgage commitments will be required to pay all of their unpaid payments in one lump sum after the forbearance periods allotted have expired.

“More than 6 percent of U.S. mortgages are in forbearance as Americans struggle, according to estimates, to keep up with home loan payments despite the coronavirus pandemic,” The Hill reports. “That’s roughly 3.4 million home loans across the country that banks and lenders have granted payment delays as millions of Americans face daunting financial futures due to COVID-19.”

As a result, an influx of new foreclosure filings may be witnessed on the United States real estate market once mortgage forbearance programs run their course.

As recently as January, data provided by CoreLogic indicated that the U.S. had gradually moved on from the 2008 Great Recession mortgage crisis. According to CoreLogic ‘s Loan Performance Analysis Survey, “3.7 per cent of mortgages were due at some point of delinquency (30 days or more past, including those in foreclosure) in October 2019.” “The inventory foreclosure rate for October 2019 tied the previous 11 months to be the lowest for any month since at least January 1999.”

Real estate investors who are positioned to take advantage of the imminent influx can find that investment opportunities are ripe for the next few years. The potential rise in foreclosure filings will likely enable investors to secure deals below market value, not unlike the period after the Great Recession. There is no way to know what potential volume investors might expect, but now would be a good time to prepare a game plan, line up contacts, and finance to capitalize on what is to come.

Effect of the Coronavirus on Closing Schedules

Shelter orders in place have greatly reduced the number of people allowed to work and the financial sector is no exception. With many of the banks closed to the public, it is now harder to get in contact with the employees responsible for initiating every step of the closing process. There’s simply not enough staff to meet the seemingly healthy demand for the time-being.

Unfortunately, telling how long the Coronavirus may eventually delay most real estate closings is too soon. The typical closure takes from 50 to 60 days, after all. Since we’re in the “shelter in place” order for just over a month, it’s safe to assume we won’t start seeing the real impact of delays for another 30-60 days, or so. But banks were already cautious in expecting delays.

Bank regulators have already announced that they are “giving lenders more time to carry out real estate transaction assessments in an effort to keep firms lending in the midst of widespread ‘stay-at-home’ orders,” Reuters said.

For example, many conventional lending institutions were given an additional 120 days after a transaction was reached to tie up loose ends such as appraisals. The change is not only an acknowledgment that banks expect a slowdown in the months ahead but also an effort to avoid borrowers borrowing.

Excluding the delays caused by dealing with banks, buyers and sellers need to be increasingly aware of the contingencies and addendums associated with coronavirus. Most notably, it is becoming commonplace for contracts to depend on whether a purchaser may or may not be present at the closing due to travel restrictions. And while many present contingencies may not specifically name the Coronavirus, there is an increase in the number of contingencies of financial hardships.

Although this may have an effect on certain potential buyers, these delays may potentially work for an informed investor in real estate. Because investors often pay in cash to close quickly, they can bypass long bank operations and sellers will probably find their offers more competitive and attractive. Sellers who choose not to deal with prolonged waiting times and dubious attitudes towards closing would almost certainly choose cash deals over borrowed money. Perhaps even more importantly, a cash offer (especially in today’s environment) is entirely possible to result in a lower purchase price.

Coronavirus And Inmobiliary Prices

According to Zillow, by the end of the first quarter of 2020 the median home value in the USA was $247,084. To many ‘s surprise, the median home value today still appears to be on the same upward trajectory as it was for the better part of a decade.

That said, Coronavirus and the real estate market are still a fairly recent phenomenon with no guarantee that real estate values will be some months, let alone a year from now. What we do know, however, is that recent pandemic reports say home prices do not collapse as they did during the last recession. The slowdown in the market in 2008 was a lot different, as it was driven by bad lending practices to unqualified buyers, declared income loans, and predatory lending.

Instead, a health crisis produced our current economic downturn and many expect it would behave differently, with a quicker rebound. It could be even more likely that prices will continue to grow in the face of pent-up demand and a much more limited inventory supply. Years of inadequate inventory levels have historically created wars of bidding, increased competition and increased prices.

In recent years, the homes that have been put up for sale have commanded a premium and there is little to say that the near future will not bring in the same economic climate. In reality, in the aftermath of the Coronavirus, more homeowners have withdrawn their listings which could theoretically boost competition for the selected homes made available.

Delivery is declining, according to RedFin. “Americans looking to sell their homes are taking them off the market steadily in the midst of heightened economic instability and record-high unemployment reports. During the week ending March 29, 2020, there was a 148 percent year-over-year increase in delistings, which translates to a total of 28,140 homes. Nearly 4 percent of homes were removed from the market during that seven-day period, roughly twice the typical rate, “the nationally recognized real estate company said.

Pulling homes off the market at a rapid pace should continue to drive prices even higher, in conjunction with historically low interest rates and increased demand. That’s not to say prices are guaranteed to continue rising, but rather to stay steady.

A.S. Coronavirus Immobilier Post

As I said earlier, no one knows exactly where the U.S. real estate market will be once the Coronavirus subsidizes, or even how long it will take. However, what we can do is continue monitoring emerging trends and assessing the current market based on past experience.

That being said, I am confident both the real estate market and the investors will be able to adapt and evolve as we always do. Not only will these extraordinary times test us as investors but also reinforce our resolve. It is all of us who benefit about what’s going on who will thrive on moving forward. Investors who can adjust to the evolving demand will be in front of the curve, which begs the question: what does the real estate market look like when it’s all over?

Approximately a month and a half into the countrywide lockout, housing demand hasn’t seen much of a decline. People who are intent on buying appear to be ready, qualified and willing to follow their plans sooner rather than later. Many governments, however, have declared the real estate industry “non-essential,” creating a bottleneck in the shopping pipeline. As a consequence, the operation that we normally see may be postponed in the spring and summer months. Whether that is in summer, fall or winter has yet to be determined, but when it does, we may see a lot of activity.

If the economy picks up again, it will possibly slowly do so, because many people will continue to practice social distance. While people are becoming more accustomed to doing business from home and online, it is safe to assume that the trend is transferring into real estate. Online searches will not only become more prevalent but online home shows and tours will also become more prevalent. We’ve also seen a huge decrease in-person home tours, as data from ShowingTime tells us in-person home showings have dropped by nearly 50 percent from the start of the year.

As a result the popularity of video and chat tours has begun to rise. “Redfin saw an rise of 494 per cent in requests for agent-led video home tours during the third week of March, following an increase of 80 per cent the week before. As of March 30, roughly 30 percent of Redfin’s tour requests were video chat tour requests, up from 0.2 percent early March.’

Investors could very easily position themselves well ahead of the competition at the forefront of this technological trend, meaning that now is the perfect time to build your online presence. The incorporation of online applications such as Matterport and other virtual-touring apps into your everyday routine will help you set up for success. An investor who can give an in-person feeling and experience to a buyer while the buyer is at home online will win.

The investors who are in a position to turn the emerging patterns of today into the disruptors of tomorrow will be the most likely to reap success going forward.

Synopsis

While the Coronavirus is shifting the real estate market, the new environment should be seen by today’s most educated real estate investors as an opportunity, rather than an obstacle. Change isn’t necessarily bad — it’s a new opportunity to disrupt a whole industry if anything. Real estate investors who learn how to adapt to the new environment might be in a great position to weather the storm and come out even stronger on the other end.

Now — more than ever — people should look to secure their future, and perhaps there’s nothing more capable of doing that than investing in real estate. On the one hand, real estate has proven to be one of the biggest wealth-building vehicles in existence; on the other hand, it may be the catalyst people are looking for their primary source of income to remove themselves from their nine to five desk jobs and to stop depending on others.

Curious about how to get started, taking advantage of the current real estate market opportunities after COVID-19?

Whether you’re brand new to invest, have a few deals closed, or are a seasoned investor, our new live webinar covers a variety of lessons and strategies for getting started with real estate investment. These time-tested techniques may help bring you to the next level and teach you how to take advantage of the current changes in the market.