Home prices vs. Corona Virus - Affect and Outcome
Coronavirus Real Estate News - Phoenix - Scottsdale - Paradise Valley
Should you buy a home?
Many of you are probably wondering if it’s a good time to buy a home during the COVID-19 pandemic.
It’s always good to proceed with a home purchase with care and research. However, provided your financial situation is stable, then yes. If you have been looking for a home, an intelligent purchase, negotiated UNDER the current market pricing should still be on your list. The market will bounce back... and in the meantime, you will have a beautiful home, value purchased, to quarantine in. The report following, is simply to provide direct, honest, informed information for purchases during the current economic situation.
I would recommend NOT buying a house:
1. If you are not comfortable with your personal economic outlook.
2. Emotionally not comfortable buying.
3. The home seller is holding on to pre-coronavirus pricing. And many home sellers will try.
If you’re wondering where home prices will go over the next 12 to 18 months, let’s look at the Phoenix, Scottsdale Real Estate market today, APRIL 2020 A quick look will show, among all price ranges, one in six new listings is a home that is “back on market “due to buyers canceling the purchase contract. In the price range between $1,000,000 and $3,000,000, there were recently 22 purchase cancellations and NEW contracts in Scottsdale overall are down 54%- below levels in 2019 . Showings of all active listings are down in all price ranges.
So where are prices and demand headed? “According to a flash survey by the National Association of Realtors” conducted in early March 2020, 78% said, “Buyer interest was not changed.” More recently, as a Senior Realtor, at one of the most highly regarded Real Estate Brokers in the U.S., My research shows, #1. 20 out of 20 Realtors I surveyed have seen buyers either cancel a contract, stop looking or put their home search on hold. 2. Showings of homes according to the MLS Service, "ShowingTime" are down an average of 52%. #3 The same survey suggested sellers were not concerned and were holding onto prices. What does this mean for the near term residential real estate market?
Simply put, based on simple economics, demand and steady demand creates price increases. Lack of demand (overtime) causes prices to drop. Economists have noted housing demand dropped 35% by late March 2020.
Apply that to home pricing and we will be seeing reflective price drops over time.
Look for very small changes in the early stages of the business closure/recession with more significant monthly drops if the closures and recession continue. AGAIN, IF (A BIG "IF") the business closures and quarantine continue or maintain at the current level, the question is if that number is expected to grow? The answer is "yes." However, this could all change with swift action and a more comprehensive remedy. IF we are all back to work in the next 30 days the market will bounce back quickly.
However... currently, homebuyers across the U.S are losing their jobs, businesses are closing and a number of those will go out of business. Homeowners losing their jobs could be risking foreclosure, thus increasing the supply of homes; combine that with low demand, a slow seller response to pricing pressure and that is a recipe for a significant slow down for home sales. According to a recent article, Banks are already doing loan modifications and tightening lending guidelines to a very significant degree. The very guidelines that have assisted in the most recent boom housing market. See link here for more details . https://www.housingwire.com/articles/mortgage-lenders-are-tightening-standards-as-coronavirus-crisis-worsens/
Between 2007 through 2012 loan modifications and payment deferrals helped homeowners…but did not prevent the landslide of foreclosures sales. This is a snippet of that article. “ Mortgage modification programs- Several large financial institutions are projecting that the economy will fall into recession. Coronavirus-related layoffs have already hit businesses throughout the U.S. When someone gets laid off, they lose their principal way of paying their mortgage and can easily start to miss payments”.
However, even with the banks, strengthening loan guidelines, preparing for loan modifications and foreclosures, some journalists and Real estate marketing outlets are suggesting a return to business as usual by the end of the year. My working experience from the last epic drop is “It will take time” (again IF the current business closures continue) Take a look at this link below with a timeline of the spread C19, with the first noteworthy events in China beginning in December of 2019.
The reality is; Economist, Myself as a Realtor and Market Analyst cannot predict the future of the real estate market due to the many variables involved - but it is, none the less a mathematical equation. The longer the virus hampers are the ability to safely interact, the lower demand for homes will be. Prices will slowly reflect the change in demand. Homesellers in 08 were slow to respond to pricing pressure no doubt this period will be no different.. so how low prices go will be entirely determined by the length of time the economic woes continue - noting, Home-buyers that bought in early 08, as prices were still coming down, lost thousands in equity almost daily as prices continued to drop. Link here is an article from CNN money in 2008. Although circumstances are different, many of the same economic components are in play. So what should you expect to see is- small percentage price drops/losses every month as this pandemic and recession continue. If you buy now at current pricing and the pandemic and recession last just 6 months expect a 6% to 12% loss in that period. (PLEASE NOTE EVEN A 10% DROP IN PRICES WILL STILL BE ABOVE 2019 PRICING). Link to 2008 article https://money.cnn.com/2008/12/30/real_estate/October_Case_Shiller/index.htm. Is this all bad news??... NOT if you are a buyer. You now have honest/accurate information from an educated source and you can negotiate accordingly.
I want to be positive,but you are better served with realistic -honest information. To think, 'when lockdowns are eased, the market will bounce right back'.. is unfortunately not realistic, home buyers will have incurred additional debt, saving depleted, credit scores will drop - or be down, bank lending guidelines have already been tightened
in last 5 days... and for at least a few additional months, even for those select few who did not suffer substantially economically, caution will be exercised. Provided no new additional market/health events take place and there are no new measures in place slowing the economy .. my near term projection, based on going though two previous market collapses ... and current research is, 'it will be 12 to 18 months before the market fully recovers" IF these shutdowns and closures go beyond 60 days…and longer if the closures and containment of the virus falter...
Should you buy a home in the meantime…?
Again. Absolutely yes !! …in spite of the cautionary news above. HOWEVER…as I mentioned earlier, 1. Not if you are not comfortable with your personal economic outlook 2. Emotionally not comfortable buying.... or 3. The home seller is holding on to pre-corona virus/stock market crash pricing. And many home sellers will try to… and for them,….‘I have seen the future’… I saw in 2007 when many sellers stubbornly called good offers, “insulting” only to call months later with “hat in hand’ to apologize and kindly ask for an offer $200,000 less! .. than the offer they dismissed just months before. So yes to intelligent purchases. The market will bounce back and in the meantime, you will have a beautiful home to quarantine in.
Call me and we can discuss the market and what numbers are currently reasonable when considering purchasing a home in this market.
Michael Chaisson, Realtor
Russ Lyon Sotheby's International Realty
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