State lockdowns have only been in effect for less than two months — and many states are already beginning to reopen in stages — but the impact of the coronavirus pandemic on the real estate industry is already being felt. Real estate transactions are difficult to complete, many apartment buildings are unable to handle showings, and nearly two million homeowners across the country have missed a mortgage payment already amid skyrocketing unemployment rates.
The impact of COVID-19 on the real estate market is widespread and comes from many sources.
Mortgage rates continued to fall and reached an all-time low in March but may fall as low as 0% or lower as the Federal Reserve worries about keeping the market functioning and credit and liquidity available.
The market has already been slow, but Chinese buyers, who for years have been a significant source of foreign demand for U.S. real estate, are no longer buying in in-demand markets in California and New York. Some of this impact is due to rules by the Chinese government on international spending as well as tightened U.S. immigration rules, travel bans, and quarantines.
Delays in closing are also having a major impact on sales. In many cases, it can be very challenging or even near-impossible to close a real estate deal with travel restrictions, different state definitions of “essential business,” and mandatory quarantines. These complications can make it difficult for a buyer to see a property before making an offer and complete due diligence.
In a handful of states, real estate transactions can only be conducted with significant limitations. In New York, for example, real estate must be conducted remotely, including appraisals, inspections, and title services.
As unemployment skyrockets and uncertainty grows about the state of the economy in the upcoming year, demand for homes has also fallen. More than 10 million unemployment claims were filed in two weeks at the end of March alone, and this number is expected to rise.
Some banks are suspending foreclosures, and many cities and states have enacted eviction and foreclosure moratoriums as one-third of renters failed to make rent payments in April. While this is a temporary fix to ensure people have homes, it doesn’t fix the long-term problem of how rent and mortgage payments will be made. If mortgage payments are suspended for too long, it will also strain lenders who will not have the capital to lend to new homebuyers when demand increases.
While this is an expected impact, other forms of damage to the real estate market aren’t so apparent at first glance. Homebuilders are facing supply chain disruption as nearly one-third of materials come from China, which may delay construction when demand does pick up.
The mortgage and real estate industry may rebound very quickly from the uncertainty and impact of COVID-19, but it will likely still lead to fewer people in the market in the year or two to come.