Over the last few weeks, the Coronavirus, also known as COVID 19, has dominated the headlines and impacted life for people all over the world. School closures, no public gatherings, sporting events, massive stock market fluctuations, and travel bans are just a few of the ways the Coronavirus has affected us in just a few days.
In this post, we wanted to take a look at Coronavirus COVID-19’s impact the real estate market.
It’s All About Supply and Demand
Although there is plenty to be cautious about regarding Coronavirus, its effect on the real estate market should not be one of them. In fact, history has shown that in the wake of a pandemic, the real estate market as a whole has rarely, if ever, been largely affected.
Like most markets, the real estate industry is all about supply and demand. The supply and demand in real estate can be broken down into one cardinal rule:
1) If we have too much inventory (number of houses for sale) and not enough demand prices (home values) will go down
Other than the Great Depression and the 2006-2008 Recession, supply outgrowing demand doesn’t happen at a large scale.
If you look at the graph below, you will see the instances where housing prices have dropped in the United States over the last 60 years. The shaded areas indicate when the economy has gone through a recession.
Look a little closer, and you will see that housing prices have never fallen during a recession; in fact, it is usually a result of a recession that causes investors to shift their capital from the stock market into real estate. You could say that the stock market and real estate industry have a negative correlation. Meaning that as one goes down, the other goes up. So when the stock market falls dramatically, the real estate industry typically improves. That shift in capital increases buyer demand, which increases home values.
Another reason housing markets have flourished in times of crisis is the Federal Reserve. For example, after the 9/11 attacks, the Fed decided to cut interest rates to historic lows, and by doing so, were able to stimulate the housing boom of 2002, 2003, 2004 where we saw one the fastest and steepest spikes in real estate values.
So history shows us that when Federal Reserve starts stimulating the economy by cutting interest rates, it has a beneficial impact on the real estate industry.
As the Coronavirus pandemic has caused widespread concern, the Federal Reserve has been responding in kind, slashing interest rates to the lowest we’ve ever seen.
For decades, real estate has been considered an incredibly safe investment, which is why so many investors will move their money into real estate during tumultuous times. Here are two other factors to consider regarding the real estate market, and how things have changed since the Great Depression and Great Recession:
- The Federal Government works hard to ensure that the economy stays healthy.
- Home supply is nowhere near what it was in 2006, and we are currently facing the lowest real estate inventory in United States history. In fact, in some areas we have a housing inventory of less than two months!
So believe it or not, we are now facing the perfect storm where mortgage interest rates have been dropped down to historic lows coupled with heightened demand due to investors fleeing the stock market, and the lowest housing supply ever before in history. We’re poised to see home prices greater than any other time in history.
By focusing on the supply and demand of real estate, and blocking out the other noise and the fear, this is an incredible opportunity for you to take advantage of what could become the next great housing boom!
Real Estate Agents Role in Battling Coronavirus Fear
As a real estate agent, not only are you poised to see a feeding frenzy in terms of home sales and bidding wars, you’re also ideally situated to help combat the fear that permeates the world right now.
At this time it’s important to not only practice personal safety (wash your hands, stay away from large gatherings) but to help quell the economic uncertainty and keep the economy moving by servicing your clients and facilitating their investments in real estate.
There is, and will continue to be, a great deal of fear and uncertainty, and while you aren’t medical professionals, you can help dispel fear by educating and providing the public with the material and information that they need to make wise real estate investments.
We’re at one of those points right now, according to every economic indicator out there, where home prices are set to skyrocket. And it’s our job to get the word out to the public. Doing so gives people hope, and giving people hope actually helps calm our society and ease some of the problems with this pandemic.
As real estate professionals we’re are the foot soldiers on the ground that help get our industry and our society through what otherwise is a very scary time. So, stay safe, stay positive and inform the public of the positive signs we see for the real estate market.
Resources to Support Social Distancing
As you practice social distancing to help prevent the spread of Coronavirus, here’s a great way to keep-up your real estate education – Online Courses. Did you know that we provide Online Courses that can help you learn everything you need to know about the real estate industry? Check out our Online Learning Center for more details.
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