These are uncertain times; make no mistake. No one really knows how this new pandemic that has already spread around the globe and shaken the financial markets will impact real estate or the rest of the economy. What we do know, is that we have woken up to a new reality. And in the short term, many industries such as travel and entertainment and small business will take massive blows. It is likely that a recession is around the corner, if one hasn’t already arrived.
The last time a recession hit the housing market was in 2008, and many individuals who had the wisdom to take advantage of it made a lot of money by buying low. Consider housing markets in pockets of California, Florida, and New York where real estate prices have skyrocketed since the last plunge. So while there is so much we don’t know yet about what will happen in the next few months, you can probably place your bets on the fact that a lot of markets will be suffering if the current stay at home policy is prolonged.
It will probably be wise to hold off on purchasing in working class neighborhoods where ordinary mortgage paying workers who are not entitled to sick leave or who cannot afford day care, may be putting up their homes for sale. Those markets are certain to take a short term dip, although, if you can wait out till the recovery, history is on your side if you can simply buy and hold. Conversely, in demographics where homeowners can collect a paycheck while working away from home, it will be a long time before the real estate markets experience a drop. Inventory may still remain fairly low in the more affluent neighborhoods as it’s been so far in 2020.
What we do know from 2008, is that the S&P 500 went on a free fall and saw its value cut in half, while the real estate market eventually followed in the footsteps of stocks. Back then, the real estate plunge provided a great deal of investment opportunity for those who were able to hold on to the properties for 5-10 years. Buying a home in 2008 sounds like a great investment opportunity now.
Another reason why buying a home right now may be a great timing is the historically low interest rates. The fact that so many people may not be able to qualify for buying a house during a recession, means that you may find a renter to pay the majority of the monthly payment while you hold on to the property and build equity.
But beware buying a home or trying to sell it could be a lot more challenging than in 2008. The most simple things like holding an open house may take a back seat. Already, homeowners across the country are requiring prospective buyers to wash their hands with hand sanitizers, and take their shoes off before stepping onto the property, not to mention the many potential buyers and agents who are flat out refusing to attend open houses.
Other psychological effects of the pandemic need to be considered as well. For example, some sellers may be skeptical of keeping their house on the market for fear of loss in value if it stays on the market if buyers stay uncertain. Some real estate brokers are already adapting to digital tools like virtual video tours, although most would probably agree that a serious buyer will need to visit the property in person.