First, let's start by stating the obvious. The health of homebuyers, sellers, real estate agents, their families, and others in the real estate industry is what's most important. It's wise to take precautions and put staying healthy first and foremost.
With that said, home-buying clients are asking for advice and opinions on what to expect in the Massachusetts real estate market over the coming weeks and months. When it comes to the coronavirus (COVID-19), most people agree on one thing. We are in uncharted territory. State health officials reported Saturday, March 14, 2020, that the number of confirmed coronavirus cases in the Bay State had increased to 138 from 123 the previous day.
The coronavirus might impact the real estate market in a variety of ways. It arguably could move the housing market in different directions, depending on the public's reaction to COVID-19 and federal and state government policies in the coming days and weeks.
Let's consider a few ways the coronavirus could affect the real estate market in the Greater Boston area.
1. Do homeowners want strangers in their homes? If not, there will be even less inventory, and demand will continue to exceed supply, thus keeping prices moving up, or at least holding prices stable.
If a prospective seller is avoiding restaurants, the gym, or other public places, asking their listing agent to hold an open house would seem counterintuitive. Private showings likely won't make some sellers any more comfortable. What if the listing agent falls into one of the categories of individuals more susceptible to becoming severely ill from the coronavirus? He or she may refuse to hold an open house for any sellers.
Will homeowners who have already listed their property for sale take it off the market out of fear of catching the coronavirus? It seems unlikely but, in some towns, one or two fewer homes for sale could make a lousy inventory situation even worse.
The Massachusetts Association of Realtors (MAR) reported on February 26, 2020, that January 2020 had the fewest number of single-family homes and condominiums on the market in any January since MAR began tracking such data in 2004. Single-family inventory plunged nearly 35 percent in January, which was the 94th month over the last 95 months that saw a decrease in single-family homes for sale. The number of condo units available to homebuyers fell 26.2 percent in January.
2. If prospective home buyers decide to sit on the sidelines for some time, maybe inventory increases a bit. Of course, that assumes sellers continue to list their properties for sale. Given the limited supply of homes, it would require several months of home buyers taking a break from their home searches before the housing supply sees a material increase.
A balanced market between home sellers and home buyers is about six months. Most Greater Boston area cities and towns have less than two months of inventory.
3. What about interest rates? Lower interest rates are attractive to prospective home buyers on the one hand. On the other hand, homeowners have been refinancing into excellent mortgage interest rates over the last couple of weeks. Will they want to give up those rates?
Keep in mind that as low as these interest rates have been in the past few weeks, we had interest rates around this level in the summer of 2012. Also, interest rates have been nearly as low as recent weeks during a couple of periods since 2012 and were as high as 5 percent in November 2018.
Freddie Mac reported Thursday, March 12, 2020, that average 30-year fixed-rate interest rates increased to 3.36 percent, with an average 0.7 point, from 3.29 percent the previous week. A year ago, the 30-year-note averaged 4.31 percent.
4. If the virus continues to spread rapidly through the warmer months, we may start to see companies layoff employees. Fear of losing their jobs most certainly would deter consumers from jumping into the real estate market.
Some market analysts believe the economy is already in a recession. That's not surprising given the number of cancellations and postponements; e.g., NBA, NHL, Boston Marathon, announced over the past week. On Friday, March 12, 2020, Governor Charlie Baker prohibited gatherings of more than 250 people in the state. If more Americans are staying home for several months, a slow-down in economic activity is inevitable. The average recession in the United States lasts about 11 months.
5. How does the decline in the stock market affect the real estate market? Homeowners may feel less wealthy and less inclined to sell and buy a more expensive home and take on a larger monthly payment. Such inaction would exacerbate the low inventory situation. You would think most prospective homebuyers would not have their down payment savings in the stock market, but some buyers might and maybe will have to put the brakes on their home search, thus reducing housing demand for some time.
6. A prospective homebuyer's living situation is a factor. If someone is living with family and paying little or no rent, they have the luxury of sitting on the sidelines and probably not missing out on much over the next few months. Individuals paying premium rents and who have leases ending in the near term might feel that putting their home search on hold will result in a lost opportunity cost.
As homebuyers who have been actively looking for a home in the Boston area know, the scarce inventory situation requires the ability and willingness to quickly act when a home that meets your wants and needs, within your budget, hits the market. Some prospective homebuyers, especially those who have been outbid several times over many months, might be unwilling to watch a good home match come and go.
Ultimately, homebuyers need to make an informed decision on any home they decide to make an offer on and feel comfortable with the idea that they might need to live in the property for at least six to eight years. The longer one remains in a home, the less likely that price fluctuations will negatively impact a future sale. That's true today, and it was sound advice long before anyone heard of the coronavirus.
You need to surround yourself with real estate industry professionals who will provide reliable advice tailored to your specific needs. Trying to predict the market's future is a fool's errand.