What Impact Might COVID-19 Have on Home Values?

Posted on: June 4th, 2020 by Editor

A big challenge facing the housing industry is determining what impact the current pandemic may have on home values. Some buyers are hoping for major price reductions because the health crisis is straining the economy.

The price of any item, however, is determined by supply and demand, which is how many items are available in relation to how many consumers want to buy that item.

In residential real estate, the measurement used to decipher that ratio is called months supply of inventory. A “normal market” would have 6-7 months of inventory. Anything over seven months would be considered a buyer’s market, with downward pressure on pressure on prices.

Going into March of this year, the supply stood at three months – a strong seller’s market. While buyer demand has decreased rather dramatically during the pandemic, the number of homes on the market has also decreased. The recently released Existing Home Sales Report from the National Association of Realtors (NAR) revealed we currently have 3.4 months of inventory. This means homes should maintain their values during the pandemic.

NAR’s information is consistent with the research completed by John Burns Real Estate Consulting, which recently reported: “Historical analysis showed us that pandemics are usually V-shaped (sharp recessions that recover quickly enough to provide little damage to home prices).”

What are the Experts Saying?

Here’s a look at what two experts recently reported on the matter:

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 for 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.

Bottom Line for Relocation:

Even though the economy has been placed on pause, it appears home prices will remain steady throughout the pandemic. Relocating employees should remain confident in the market price their home will bring. It is imperative, however, for the seller to price strategically and aggressively to be able to move quickly and to recognize they do not have the luxury of waiting to see what the market will do.

Corporations should feel some relief in exceptions to benefits, such as extending corporate housing needs, as the pandemic’s curve flattens, and real estate is once again transacted as in non-pandemic times.

 

Have questions or want to learn more about Lawrence Relocation Services, please contact Ginny Taylor, CRP/SGMS, by email or by phone at 540.966.4550.