Home prices vs. Corona Virus - Affect and Outcome

Corona Virus Real Estate News - Phoenix - Scottsdale - Paradise Valley

Considering buying a home ? or in the process of buying a home..? Wondering where home prices will go over next two years. Let’s look at the Phoenix Scottsdale Real Estate market today. A quick look will show, In last 4 days, among all price ranges- 1 in 6 new listings is a home that is “back on market “due to buyers cancelling the purchase contract.  In the price range between $1,000,000 and $3,000,000 million 22 purchase cancellations in just last 4 days.

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”. Yet... as a senior Realtor at one of the most highly regarded Real Estate Brokers in the U.S; there is not one Realtor I have surveyed that has not seen buyers either, cancel a contract, stop looking or put their home search on hold... The same survey suggested sellers were still 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 drops.  Economist have noted, housing demand has dropped 35% thus far. (that is as of 3:30 pm March 21) . … apply that to home pricing and we should be seeing a significant drop in prices 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 to current level. Is that number 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 next 30 days the market will bounce pack quickly.  However... currently, home buyers across the U.S are losing their jobs, business are closing and many more will go out of business. Homeowners losing their jobs will be now be going into 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 economic disaster for home sales. According to a recent article, Banks are already gearing up for loan modifications and tightening lending guidelines. In 2007 through 2012 that 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”.  This is a recipe for the start of another wave of foreclosures.

 However even with the banks preparing for loan modifications and foreclosures,  some journalist and Real estate marketing outlets are suggesting a return to business as usual by end of year. My working experience from the last epic drop is  “not so fast”  (again IF the current business closures continue)  Take a look at this link below with a time line of the spread C19 with first noteworthy events in China beginning in December of 2018. https://www.aljazeera.com/news/2020/01/timeline-china-coronavirus-spread-200126061554884.html.

We are just now getting to where China was 13 months ago..

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 C19 test are not available and proper care and caution is not administered, meaning. “the blanket approach of closing everything” is applied, 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 12 months expect a 12% to 20% loss in that period.  Link to 2008 article   https://money.cnn.com/2008/12/30/real_estate/October_Case_Shiller/index.htm.

To think,  when lock downs 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 so testing becomes available on a greater scale .. 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 shut downs and closures go beyond 60 days…and longer if the closures and lack of attention to medical issues continues. ...

 

Should you buy a home in the meantime…?

 

 Absolutely yes !! …in spite of the cautionary news above. HOWEVER… 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

480.450.4632
Russ Lyon Sotheby's International Realty

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