I’m sure you have been following the COVID-19 updates closely. As your trusted real estate resource, my job is to update you on the housing market locally and how it may affect you economically.

It’s hard to forget the recent history, but while the 2008 financial crisis saw both the housing and stock markets drop in tandem, this was an aberration in so many ways; the housing market crash was ultimately the cause of the stock market crash. Typically the housing market isn’t tied to swings in the stock market, because people don’t buy houses purely as an investment. Housing is a basic need, and the decision to buy one is usually prompted by entering a new stage of life.

Historically low inventory and rock-bottom mortgage rates would normally set the stage for a highly competitive homebuying season. While recessions normally have only a minor effect on the housing market, the coronavirus is making life and markets anything but normal.

Zillow conducted a study on housing during previous pandemics and concluded that while home sales dropped dramatically during an outbreak, home prices stayed about the same or suffered a slight decrease. This makes intuitive sense because it’s harder for prices to change when there are few transactions. In short, previous pandemics have simply put the housing market on pause.

Furthermore, the federal government has announced a moratorium on foreclosures on any mortgage backed by Freddie Mac, Fannie Mae, or the Federal Housing Administration (FHA), which will last at least through April. This is an important measure that will keep the bottom from falling out of the housing market as the result of a wave of foreclosures, as happened in 2008, but it could have the unintended consequence of bankrupting mortgage servicers who would suddenly be on the hook for the missing mortgage payments.

Coronavirus already pushing mortgage rates lower

The Federal Reserve implemented two emergency interest rate cuts since the coronavirus outbreak, bringing the yield on Treasury bonds to almost 0 percent. Furthermore, the stock market crash can have an effect on interest rates, too.

When investors start thinking the stock market is too risky—like right now—they sell their stocks and buy bonds. The increased demand pushes the price of bonds higher. The higher the price of bonds, the lower the interest payment—called the yield—is relative to the price. When bond yields are lower, mortgage rates are lower, too.

However, the New York Times reported that this inverse relationship between stocks and bonds has not held as firm as it has historically, probably in part because interest rates were already so low. Rates are down to around 3.8 percent. That number has held steady throughout the pandemic, so it’s an open question whether mortgage lenders are willing to go lower, regardless of whether the Federal Reserve cuts its target rate again.

Where the housing market currently stands

The housing market going into the pandemic was, in a word, tight.

supply is at near record lows nationwide, and demand is near an all-time high. This combination means home prices are also near all-time highs in most cities as many potential buyers are bidding on a limited supply of homes for sale.

The wild card in the housing market is coronavirus. The longer the pandemic goes on, the more likely the economic fallout induces a minor recession and high unemployment, which will cause demand to drop. Still, don’t expect home prices to drop all that much. It would likely just slow down the pace at which they are rising. When the pandemic passes, it’s possible a quick recovery would bring the housing market right back where it was.

And despite low rates, the pandemic could also make it harder to get a mortgage. Any prolonged mortgage payment suspension could cause chaos in the mortgage industry and lead to a liquidity crunch, where lenders don’t have the capital to lend. Subprime and speciality mortgages, referred to as non-QM, have already vanished for the market, which would make it harder for people with less than perfect credit to qualify.

OVERALL: San Diego realtors are finding new ways of showing homes including seller provided online walk throughs, HD videos, Live Open Houses and more. The need for housing is not going away, the key takeaway for all of us is adaptability. As less homes come on the market, home prices may continue to stay high.

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