COVID-19 and What it Means for the Real Estate Market
Amidst the scary news stories and updates flooding in across all media platforms, we’re left to process the real life impact of a global crisis. My team and I have been discussing what’s to come for the real estate market. These predictions are our educated guesses, so be sure to keep that in mind as you read through these. Remember, at the end of the day, it will always be up to you to determine what YOU are most comfortable with doing.
So, the big question is: “What is Going to Happen?”
First and foremost, let me be clear – it is not a matter of IF, but WHEN will there be a shift in the housing market. We just don’t know what direction that shift will take nor the expected duration of that market change. In response to the outbreak of COVID-19, we are looking to what potentially awaits our housing market during and after the chaos subsides.
Here are our top 5 predictions:
- Worldwide Event Affects Locally – COVID-19 is a worldwide event, which brings with it a worldwide impact. As foreign countries battle this virus alongside the U.S., we would not be surprised to see more foreign investors flood our housing market. At the end of the day, the U.S. market, and especially San Diego is going to be a safer investment than many other foreign housing markets. The more demand we have, the more competition there will be. If this happens, home prices may continue to rise.
- What is the Safest Investment? When the stock market becomes unpredictable, the people start to worry about where they’re investing their money. In the past, when concerns arise in a bear market, people pull their money out and look for safer routes to invest their money, often turning to bonds and real estate. This could also lead to more competition in the market, driving prices up.
- Commercial versus Residential Real Estate – As more and more institutions and facilities begin to close their doors as a means to protect from the virus, it’s becoming more apparent that the fallout from this pandemic will bring along devastating economic affects. An economic crash means businesses could be closing or going through rounds of layoffs. This could result in more end-users (a.k.a. not investors) exiting the market – cue less competition. However, if the businesses are really suffering, investors will have more focus on residential real estate over commercial buildings – cue more competition. After all, everyone needs a place to live. Keep in mind, San Diego is also pretty much completely built out. We can’t create more land to build more homes, which makes San Diego real estate (especially coastal homes) a safer investment than most other markets.
- Interest Rates – Rates are DOWN! A 30-year fixed-rate mortgage is around 3.25% APR. The general consensus is that rates are going to stay low throughout the year, which takes some pressure off your moving timelines to take advantage of this market condition. Sure, they might go lower but they could very well get higher too, AND once all this COVID-19 chaos is behind us, I imagine rates will start going up some. Remember, even 0.25% can impact your purchasing power as a buyer, so if you plan on staying in your current property for 5+ years, you should be fine.
- What Will Sellers Do ? I think just like your average American in today’s climate, buyers and sellers alike are apprehensive. Some people are not going to want to move right now which could make inventory go even lower. A lot of demand and not enough supply means prices go up, up & up.
Remember, real estate is not meant to be a short-term investment. Will you see your home value go down? We don’t know. Will you see your home appreciate? Yes, that is the one thing we DO know, home prices will always increase over time. The long and short of it is, real estate will always be the sound investment in times of uncertainty.