It may not come as a surprise to read that the housing market has been affected by the COVID-19, but many home owners and potential buyers may be curious what experts think the future holds for this year’s real estate market.
As stay at home restrictions coupled with fears of the spread of the pandemic began in March, pending sales on homes took a direct hit. In fact, they fell 20.8% in comparison to February. According to an article published by CNBC.com, the housing market had already been impacted by a shortage of homes for sale. As the news and impact of COVID-19 settled in, the shortage became more drastic as owners decided not to list and some homes were actually de-listed.
However, experts believe, according to this piece written by Justin Sullivan, that this impact should turn around. Quoting Lawrence Yun, NAR’s chief economist, “The housing market is temporarily grappling with the coronavirus-induced shutdown, which pulled down new listings and new contracts. As consumers become more accustomed to social distancing protocols, and with the economy slowly and safely reopening, listings and buying activity will resume, especially given the record low mortgage rates.”
After 5 weeks of decreasing mortgage applications, there was recently a double digit rise in mortgage applications. And, although the home sales may be low for the year, home prices should not be impacted. The fact that there is still a shortage of homes and the mortgage rates are low enough to attract buyers, prices could see some significant increases.
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The impacts of COVID-19 are far-reaching and include not just health concerns, but concerns about jobs and the economy. An obvious result of the turbulent economy and the alarming rate Americans are losing their jobs is a down turn in the real estate market.
According to an article published by Market Watch, “…the rapid rise in unemployment as a result of the coronavirus pandemic and its accompanying stay-at-home orders will curtail many Americans’ ability to afford a purchase as big as a home”, states reporter Jacob Passy. Further, sellers are more hesitant to put their homes on the markets due to uncertainty about pricing and the desire to avoid strangers from entering their homes unnecessarily.As a result, Fannie Mae projects that home sales will fall by almost 15% in 2020.
Yet, this doesn’t necessarily translate to bad news the prices of homes. Fannie Mae still expects the median prices of homes to rise for both existing and new homes. Further, the article states, “The mortgage giant currently expects the U.S. economy and home sales both to rebound in 2021. But that rebound is contingent on the pandemic’s trajectory.”
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The stock market has taken some big hits over the past weeks as a result of the global pandemic of COVID-19. Many Americans are wondering if the next recession is around the corner. Some may be wondering if the housing market will also see declines that parallel stock market drops.
MarketWatch.com published an article, written by Jacob Passy, that may put real estate owners at ease when it comes to the value of their property. According to the article, experts don’t necessarily believe that a potential recession will significantly impact the housing market. “While the housing crisis is still fresh on the minds of many, and was the catalyst of the Great Recession, the U.S. housing market has weathered all other recessions since 1980,” wrote Odeta Kushi, deputy chief economist at First American and the report’s author. “In fact, the housing market may actually aid the economy in recovering from the next recession — a role it has traditionally played in previous economic recoveries.”
Nevertheless, homeowners should stay informed and aware of the climate of the economy because different economic factors can have an impact on the housing market. As we see declines in the stock market, consumers may feel more hesitant to move forward with a home purchase, therefore impacting home sales. Another economic change that could influence the real estate market are the loss of jobs. Increased unemployment could, in turn, lead to foreclosures if the homeowner can’t keep up with their mortgage payments. Foreclosures, according to the article, “can have a ripple effect through a local market, causing other homes to drop in value. “
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On Saturday, March 21, 2020 at 5:00 p.m., Governor, J.B. Pritzker issued a public order (“Order”) directing Illinois residents to shelter-in-place. The shelter-in-place is, for now, effective through April 7, 2020. During this time frame, how is your real estate transaction going to be affected?
The short answer is that real estate transactions will proceed as planned. Under the Order, there are several exceptions or permissible activities that may still be performed. These are called “Essential Businesses and Operations.” Under this category, Financial Institutions (i.e. banks, title companies) and Professional Services (i.e. legal services, accounting, appraisals) are allowed to continue operating. As such, real estate transactions can proceed as planned and deals can still close during this period.
However, as an added precaution and based on recommendations from the title companies in our area, the following procedures will be followed:
All cash transactions will be closed electronically via e-mail and/or DocuSign. Any funds to be provided at the closing will need to be sent via wire transfer to the title company. Documents required by the title company to be an original (i.e. Deed) should be dropped off or sent via overnight courier to the title company prior to closing. Once the transaction has concluded, copies of the pertinent documents will be sent via overnight delivery to all parties. Any proceeds due will either be wired or a check sent via overnight delivery. There is also the option to pick up your documents and check at the title company.
Transaction with a Lender
Seller(s): It is very common for sellers to sign their closing documents in advance, give their attorney a power of attorney for closing day and not attend the closing. Our office has always offered this service and will continue to do so during this time period. Moreover, title companies are encouraging sellers not attend closing and send their documentation prior to closing. Therefore, for our seller clients, our office will coordinate with you to get your signature on the necessary documents in advance of closing. The few documents requiring signing on the day of closing we will execute on your behalf under a power of attorney.
Once the transaction has concluded, copies of the pertinent documents will be sent via overnight delivery to all parties. Any proceeds due will either be wired or a check sent via overnight delivery. There is also the option to pick up your documents and check at the title company.
Buyer(s): Due to the fact that many loan documents are required to be wet signed and notarized, buyers must still attend the closing. Title companies are requesting that only the buyers required to sign the loan documents and their attorney attend the closing, so as to limit the number of people at the title company. The title companies have implemented some safety measures to ensure a safe and clean environment. All closing rooms will be cleaned with disinfectant after every closing. The pens used will be new and disposed of after closing. Also, they will limit the number of people allowed in the facility and practice social distancing recommendations when possible. Some title companies are also offering drive by closings, where buyers can pull up, sign the documents in their car, and hand them back to the title representative.
Once the transaction has concluded, copies of the pertinent documents will be sent via overnight delivery to all parties. Any proceeds due will either be wired or a check sent via overnight delivery. There is also the option to pick up your documents and check at the title company if you choose to wait after signing.
In short, your real estate transaction should proceed as planned with just some slight modifications for the closing. Lenders, attorneys and title companies are still working during the shelter-in-place period. Fournier Law Firm, Ltd. is committed to assisting our clients in making your closing as smooth as possible. As your closing nears, our office will be in contact with you to coordinate the necessary steps to get your deal closed.
The real estate market, like most areas of business world-wide, are adjusting to social distancing recommendations while trying to anticipate how the global pandemic will affect the economics of their business.
Economically, the mortgage rates are still low which, normally, would result in more buyers looking to secure a low rate and purchase a home. However, the economic uncertainty might keep some buyers from moving forward with a large purchase such as a home, and may keep sellers from listing their home if not necessary.
An article published by OCRegister.com indicates that some areas of the country are already seeing how the concerns about the economy are impacting both sellers’ and buyers’ decisions. “I am hearing (of) buyers and sellers cancel (deals) due to fear of job security and, really, just the unknown,” said Dilbeck Real Estate agent Lisa Kaul from the Santa Clarita area. “One seller canceled their new purchase even though their home was already sold.”
Of course, there are plenty of homes on the real estate market and many buyers who are still planning on purchasing a new home. However, the social distancing recommendations has impacted the way buyers are viewing homes for sale. Many owners are asking that their realtor not hold open houses. Guidelines for screening potential buyers for diseases, requiring those visiting homes to sanitize their hands are top discussions among sellers and their realtors. In this age of technology, however, virtual tours are becoming more and more common and are an ideal alterntative.
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News of the coronavirus is a constant in all mainstream media lately. Its impact is far reaching, not only as Americans and citizens of the world take precautions to stay healthy, but economically and on a global level. As a result, last Tuesday, the Federal Reserve made a decision to make a rate cut, in anticipation of recession concerns.
According to a Realtor Magazine article published last week, the rate cut was significant, the largest one time cut since 2008. The impact of this decision could, in time, affect the real estate markets. According to Lawrence Yun, chief economist at the National Association of Realtors, “The real estate sector will hold up very well because of the rate cut. Hesitant home buyers will be enticed to take advantage of low interest rates. Commercial property prices will rise due to higher returns that can be had from the bond market after adjusting for risks.”
Some experts believe that rates which are now averaging 3.45% could drop even lower before the economy rebounds from the effects of coronavirus. Mortgage rates low as 3% have not been ruled out by Rick Sharga, president and CEO or CJ Patrick Company.
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Photo Credit Sergio Santos