On Wednesday members of the Greater Philadelphia Association of Realtors had the privilege of attending a virtual presentation by Lawrence Yun, Ph.D., chief economist and senior vice president, research for the National Association of REALTORS® (NAR). Dr. Yun shared his impressions of the impact of COVID-19 on the residential housing market in Pennsylvania, considering that Gov. Tom Wolf’s classification of real estate as a nonessential business has put the brakes on an person-to-person activities for buyers, sellers and agents in the state. Real-estate overall will be in the doldrums for the second quarter with a rebound in the second half of 2020 likely starting in July. Prices will be stable, according to a recent NAR survey, and mortgage rates may dip a sliver from the current record-low rates.
This Is Not Repeat of 2008
In January of this year. Dr. Yun’s forecast for the short and long term was good overall. Of any hurdles that would have popped up, he says, a pandemic was not the one he expected. He anticipates the data on gross domestic product and other economic indicators likely will show a recession in the second quarter of 2020. However, Dr. Yun emphasizes this is a very different scenario from the real-estate market implosion of 2008-2009.
The current situation is a government-imposed work stoppage, not a lending and credit crisis as in 2008-2009, says Dr. Yun. Further, he believes that many people impacted by unemployment may have most of their lost income made up by unemployment compensation, which will help the economy bounce back more quickly. Mortgage-forbearance programs also kicked in very promptly during the present downturn, which may help those experiencing employment hardships from tumbling into default.
Low Inventory Before, Even Lower Now
After five weeks of shutdown in Pennsylvania, new listing inventory is down 80% to 90%, says Dr. Yun. Notably, inventory in other states that are permitting real-estate showings, photography/videography, walk-throughs and inspections is down only modestly. The Pennsylvania drop comes on the heels of already-low inventory in the new construction and lower- and mid-priced existing-homes categories. Builders have been underproducing for about seven to eight years after suffering in the 2008 housing crash.
“Home sellers are aware that there are few buyers out and about, so inventory has come down to extremely low levels,” said Dr. Yun. Add to that the inability to send agents and photographers into properties and it’s easy to understand why homes are not hitting the market.
Buyers Face Tougher Lending Standards
Dr. Yun reports that only about 10% of buyers, perhaps an even higher number of first-time buyers, would ever buy a house sight-unseen, so the shutdown in Pennsylvania certainly is making it difficult to shop for and compare homes. Virtual tours, available online, have limits, of course. The incredibly low mortgage rates presently offered are extremely helpful, but as we reported last week, lenders are starting to require higher credit scores, so for the moment, buyers will need to shop online in Pennsylvania, connect with their realtors who may know of properties available that are not actively listed and keep their financials in order as best they can through the worst of the COVID-19 pandemic.
Home-Price Forecast Is Stable
In 2008-2009, home prices plunged by about 30% on average. This time around, Dr. Yun expects home prices to remain stable. A flash survey by NAR of 3,000 home buyer and sellers revealed that sellers don’t expect to have to reduce their home prices, and if they do, they say they would drop their price 5% or less. “There is no panic on the home sellers’ side,” says Dr. Yun.
About 60% of home buyers surveyed said they believe home prices will be about the same or perhaps dropping by about 5%, a small bargain.
The conclusion: Buyers and sellers shouldn’t expect inflation or discounts in prices. With the exception of homes in the upper end of the market, where there is an oversupply, there likely will continue to be multiple bids for well-priced, well-located homes. Dr. Yun notes that the lack of new construction in the pipeline combined with sellers delisting their homes through the pandemic, suggests the residential real-estate market should be stable after the initial Q2 shock from the shutdown.
“Losing the spring buying season is a big deal. If families cannot make the move in July or August, they may decide to stay in the same home for another year,” says Dr. Yun. “But home sales will come back in the second half. We may end the year down 5% or 10%, but prices will probably be stable or maybe even an increase.”
If you would like more specific guidance on the real-estate market in your area, please contact the Kurfiss Sotheby’s International Realty office nearest your home. We are working remotely and can put you in touch with an agent who can provide you with advice on buying and selling in the near-term market.
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