How Does Coronavirus Affect Real Estate?
Update 3.21.2020
Well we can now answer the question “How does Coronavirus affect Real Estate?”
Along with the State of California, Real Estate Agents are effectively shut down.
Here’s the guidance for the California Association of Realtors:
C.A.R. Guidance for the Real Estate Community
What about Deals in the Pipeline and Listings
Speaking with a number of lenders, escrow companies, and Title Companies, there are still deals closing. These are the ones already in escrow where the lender has done an appraisal and the other contingencies and conditions have been met.
Everyone is taking precautions as to any documents that have to be signed and I know that as of this weekend a number of lenders are looking at using electronic signing so they don’t need documents notarized.
As for new business, there are some agents who IMHO are being inappropriate and putting new listings out and touting virtual walk throughs etc. I think it is still too early for that. Maybe a few weeks from now.
When we do start up again, which I think will likely be a few months from now, it will be a great market for both Buyers and Sellers assuming mortgage rates remain low. And they are really low right now. I heard under 3% for 30 year fixed Jumbo loans.
There will be huge pent up demand from Buyers and Sellers looking to make deals. But some things will change for the near future and some forever.
Once we start up again, forgot the cattle call Open Houses. I think most Sellers will be very cautious about letting strangers into their homes because there could very well be another wave of this although I pray not.
This means that Agents who offer enhanced technology and marketing may have a leg up. Videos like the ones I have done for years may be more valued as well as floor plan and 3D Virtual Tours. We’ll also screen more Facetime and Skype tours as well as IG and FB live virtual Open Houses.
And because in Real Estate we are always concerned with full disclosure, now this:
And one last thing….
So what’s that about?
Well, believe it or not, some Agents were still scheduling Open Houses putting their clients and the public at risk. Wow. So CRMLS which is the largest MLS in CA took that option away from Agents, thank God.
Scroll down to see the evolution of this post.
Update 3.18.2020
A few of the national brokerages are calling for a moratorium on Open Houses. That seems like a good move to me. IMHO, for the protection of the public, we as an industry should probably shut down for a while. Agents, Brokers, don’t worry the demand for housing will be there when we as a country along with others in this world, get a handle on this pandemic.
C.A.R. Advice
If you as a consumer are not happy with your agent right now, here’s some of what the California Association of Realtors is telling us:
Can a broker refuse to hold an open house or show a property?
Yes. As indicated above, the RLA authorizes the broker to market the property by any method selected by the broker. Given the current environment surrounding COVID-19, it would certainly be reasonable to refuse an open house or show a property. But the broker is agreeing under the terms of the RLA to exercise reasonable effort and due diligence to achieve the purpose of the listing — which is to sell the property. The broker should discuss alternative ways to market the property other than holding the open house. Ultimately, a listing agreement employs a broker to sell the property. In both of these scenarios, a disgruntled seller may fire the broker, and then it would be at the discretion of a judge whether the seller had good cause to do so.
What unique issues does coronavirus present to the real estate industry?
When an infectious disease, such as coronavirus, is associated with a specific population or nationality, fear and anxiety may lead to social stigma and potential discrimination. REALTORS® must be mindful of their obligations under the Fair Housing Act and California’s own fair housing laws and be sure not to discriminate against any particular segment of the population. While the coronavirus outbreak began in Wuhan, China, that does not provide a basis for treating Chinese persons or persons of Asian descent differently.
May I ask clients at an open house or others I interact with in my real estate business if they have any respiratory illness?
Yes. It is allowable to ask if the person has a cold, influenza or other contagious respiratory illness. Agents are not required to put themselves at risk. However, such questions must be directed at all clients equally. Otherwise, agents could face claims of discrimination on the basis of ethnicity, national origin, primary language or race.
May I ask clients at an open house or others I interact with in my real estate business if they have recently traveled abroad?
Yes. However, real estate licensees should understand that they are not experts on where such outbreaks are occurring, nor should they be burdened with the task of constantly updating such knowledge. But in light of the coronavirus emergency, it may be reasonable to ask such questions. See the next question on how a screening question policy could be implemented. Be aware, however, that such questions can lead to discrimination on the basis of ethnicity, national origin, primary language or race.
This is the new normal.
Update 3.14.2020
By now you all know that the pandemic Coronavirus has been declared a Public Health National Emergency.
So, yes, this will affect Real Estate.
Here’s something I saw in the private Agent Remarks today in the MLS for a new listing including the caps:
“The property is currently occupied by a tenant. ****AS OF NOW, THE ONLY SHOWING OPPORTUNITY ALLOWED IS THIS SUNDAY, 3/15, AT 4-5 PM.**** If you have any prospective Buyer who might be interested in this property, please make sure that you bring them over at this time. As per the request from the tenant, please do not bring anyone with colds or high temperatures and to use hand sanitizer prior to entering the house. Thanks for your understanding and cooperation.”
I think we may be seeing more of this - limited showings, concern over disease spread and who knows what else.
Along that line I read that this weekend may be a real indicator of what to expect re Open House traffic going forward.
Wash your hands.
Update 3.5.2020
There’s still a lot of confusion and questions as to why mortgage rates haven’t dropped more.
This is today’s reprint from MBS Quoteline which is one of the major sources in the Real Estate industry.
“As the number of reported cases of the coronavirus around the world has increased, the list of school closings, work interruptions, event cancellations, and other consequences has grown. This decline in economic activity has been brutal for stocks but good for bonds, pushing mortgage rates to record low levels. One commonly heard question is why mortgage rates have not fallen as much as government Treasury yields. There are two main reasons. First, mortgage-backed securities (MBS) have prepayment risk while Treasuries do not. When people refinance, their loans are removed from MBS. This makes MBS less valuable to investors relative to Treasuries during periods of declines and more valuable during periods of increases. In other words, mortgage rates rise and fall more slowly than Treasury yields due to the basic properties of prepayment risk. Second, the large mortgage companies which purchase loans and set mortgage rates have the capacity to process only so much business at one time. Currently, there is more demand for loans and re-financings than these firms can handle, so they have less incentive to pass along the lowest possible rates to customers. Another question is why Tuesday’s 50 basis point rate cut by the Fed didn’t cause a similar decline in mortgage rates. This answer is much simpler. The Fed sets only short-term rates, and all of those did drop by roughly 50 basis points. However, long-term rates such as mortgage rates are set and influenced by a wide range of factors and are not tied to movements in short-term rates.”
My personal speculation, and you know I really don’t like to speculate is that buyers with the best credit and relationship accounts with the major banks, ie Chase, BofA, etc might see 30 year jumbo fixed go a little below 3% before this is over. Or maybe not. Refis are an entirely different topic entirely.
Update 3.4.2020
Since I originally posted this article, there have been new developments.
To start with the stock market has had some wild fluctuations with 1000 point swings up and down. The FED has also cut rates by a half point and the 10 year bond has dropped to all time lows.
Somewhat counter intuitively mortgage rates have not dropped as much as one might expect. The simple reason is that (whether they say it or not) the investors don’t want to be holding paper that may have limited marketability going forward. In other words if you are holding 3% paper when rates are 4 or 5%, good luck on selling that asset.
Other than that, inventory remains low.
Original Post
With the CDC addressing what if we see an outbreak in the US, I’ve been getting a lot of questions about how this all could affect the real estate market. A few thoughts.
Is it possible to see open house traffic slow to a trickle or even halt entirely? Yes. Or maybe sellers don’t want 100 strangers coming through their house over a weekend and could you really blame them?
That may put more pressure on agents to do personal showings (I’ve already bought my masks) and even encourage sellers to list their homes to sell quicker thereby limiting the exposure to strangers in their house.
In addition to the buyer and their agent expect inspectors, appraisers and others to be visiting as well adding to the potential exposure risk.
And expect a lot of buyers to just stay home in general and not be out looking. This may happen during the peak selling season. And you know what happens then. Prices will go down. As dramatically as the stock market Feb 24-25? Possibly. This may be the “correction” many have been concerned about.
Or you might see sellers just hold off from listing which could cause a real inventory rebalancing which might be a good thing.
What we have already seen is that mortgage rates have come down for those with good credit. The 10 year bond is at an all time low. I would say not to get too excited about that because at some point the banks still have to make some money and add their margin. But is lower than 3% on 30 year fixed jumbo rates possible? Absolutely, with ARMs even lower maybe closer to 2%.
Speaking of banks and rates, it is also possible we see the entire loan and closing process slow way down if banks have to keep workers - particularly processors and underwriters, out of centers where the work gets done. This could even help a lot of the online only players. And possible make cash buyers even stronger.
We’ve already seen the effect on the real estate market in China and Hong Kong and it hasn’t been good.
Here’s what Forbes had to say about what’s going on and its effect on real estate:
“As the coronavirus spreads across the globe, the U.S. housing market is bracing for the economic fallout from the epidemic, which was first identified in Wuhan, China, on December 31, 2019. The rapidly spreading disease, named COVID-19, has contributed to projections that foreign real estate investment will plunge considerably this year. Against this backdrop, mortgage rates are falling as investors run for cover in safe-haven assets, creating a new opportunity for thousands of borrowers to cut their monthly payments or shop for new mortgages.”
As many agents in the LA market know, Chinese buyers have been active in our market. Here’s another quote:
“Chinese investors have been the top purchasers of American residential real estate by dollar volume for seven consecutive years. From April 2018 through March 2019 alone, Chinese buyers flexed their purchasing power by snapping up an estimated $13.4 billion worth of residential property, according to a survey by the National Association of Realtors of residential purchases from international buyers.”
And needless to say the in country Chinese market has been very negatively impacted.
WHAT TO DO
The question for sellers is do you put your house on the market now when mortgage rates are low as is inventory and risk it is on the market and things get worse in the US. The answer is yes because if it doesn’t sell you still have the option of taking it off and waiting.
What about buying? You might never see rates this low again (or they may go lower). So if you find the place you want, go for it.