Certainly, we can expect to see COVID-19 impact the housing market for a number of reasons. Some fear a housing market crash like the one in 2008. True, this crisis has already impacted us economically, both on a macro level as the stock market has shifted and also on micro level, as many businesses are in danger of closing and families’ incomes have been reduced dramatically.
As early impact scenarios emerge, most estimates project a national GDP drop in the range of 0.25-1.0 percent, with 6-24 month impact periods. Through the lens of the H1N1 outbreak, the prevailing coronavirus has the potential to accelerate economic corrections and, with some lag, contribute to sharper but temporary drags on housing activity.
Yet even with all the reasons to be pessimistic about the future of the housing market, there are some positive things to hold on to. These factors will hopefully protect the housing market from a real crash, as well as help it bounce back from whatever wounds the COVID-19 crisis does inflict.
- Though many are predicting a recession, that doesn’t necessarily mean we will have a housing crisis. Looking at history, we can see that home values actually still increased in 3 out of the 5 last recessions, and only decreased by less than 2% in the 4th recession.
- There’s not a surplus of housing inventory like in the last crash, there’s a shortage. Locally, we have been operating at about a two-month supply, which means we are in a seller’s market and there are fewer houses than buyers.
- Prices have been high, but not inflated. Yes, housing prices that are out of control precede a market crash. While prices are higher because of the shortage of houses for sale, current prices are reasonable. The percentage of income going towards a mortgage is lower than it was in the last market crash due to higher incomes and due to…
- Mortgage rates at the lowest in decades. Rates are at around 3% or even lower, so even with more expensive houses, they remain affordable because of the low interest rates.
In summary, in the short term (the next 3-12 months), the combined effect of lower rates and low inventory should continue to motivate purchase interest and help keep up home prices. As such, housing sentiment could remain strong despite initial shocks to the stock market and even moderate GDP declines.
All the best,
Ian Van Kooten, REALTOR, CiBP
“It’s good to be home.”