Are you in the market to buy or sell real estate and wondering how the Coronavirus is going to affect the market? Should you move forward or press pause?
The short answer is that no one has a crystal ball and can say for certain. Even the world’s most equipped expert economists failed to see the Great Recession of 2008 coming. There’s absolutely no doubt that this global pandemic will have far-reaching economic impacts, but the extent of that impact depends on so many factors, the most important being how long this ordeal lasts.
What we do know is that recessions are an inevitable and a natural part of the economic cycle. A booming economy will always lead to a recession simply because an economy cannot continue to expand eternally. While no one can say with absolute certainty where we’re headed, the following are indicators that an impending recession is likely:
- It’s been over 10 years since our last recession. The economy has been in boom mode and it could be time to course correct.
- While not the best barometer, the S&P 500 is down 16.9% so far this month. That’s pretty major. We’re on pace for it to be the worst month since since October 1987. The DOW tanked 3,000 points today, its second worst day in history.
- Oil Prices are collapsing and experts say we’re headed toward the largest ever crude surplus in history.
- 10-year Treasury Yields are at an all-time low.
DON’T LOSE HOPE JUST YET! A NEW RECESSION WILL PROBABLY BE RADICALLY DIFFERENT FROM THE LAST ONE
In the last few days we’ve heard quite a few stories of buyers getting cold feet. The housing crash that spurred the Great Recession is still too fresh a memory. It’s crucial to understand that the circumstances surrounding the Great Recession and the circumstances we find ourselves in today are vastly different. The lenient lending requirements of the early 2000’s put many buyers into homes that they couldn’t afford.
Heres how that went down:
Lenders made loans at ridiculously low teaser-rates ➡️Later when those rates adjusted up, buyers couldn’t afford their payments ➡️ Unprecedented numbers of homeowners defaulted on their loans ➡️ Foreclosures when through the roof ➡️ Home prices tanked ➡️ The whole housing market went to hell ➡️ Investors, hedge funds, banks, anyone with any interest in mortgage backed securities lost boat loads of money ➡️ Recession.
All of that to say, the housing market crash caused that recession. The recession did not cause the housing market crash. The good news is that historically, the impact that recessions have on housing is no where close to what we saw in 2007-2009. Chances are, the situation would look a lot different this time around. In fact, during every recession in the past 40 years (with the exception of the Great Recession) the FHFA U.S. house price index rose by an average of 7.4 percent in the year prior to a recession and prices rose an average of 2.7 percent from the start of a recession to the end. Further strengthening our housing market, lending requirements over the past decade have been so regulated and so much more stringent that homeowners are undoubtedly in a much better financial position than they were before. So much so, that the large amount of equity homeowners currently have in their homes may actually provide a cushion in the next economic downturn.All of that to say, the housing market crash caused that recession. The recession did not cause the housing market crash. The good news is that historically, the impact that recessions have on housing is no where close to what we saw in 2007-2009. Chances are, the situation would look a lot different this time around. In fact, during every recession in the past 40 years (with the exception of the Great Recession) the FHFA U.S. house price index rose by an average of 7.4 percent in the year prior to a recession and prices rose an average of 2.7 percent from the start of a recession to the end. Further strengthening our housing market, lending requirements over the past decade have been so regulated and so much more stringent that homeowners are undoubtedly in a much better financial position than they were before. So much so, that the large amount of equity homeowners currently have in their homes may actually provide a cushion in the next economic downturn.
TO MAKE A LONG STORY SHORT
Without a crystal ball we have to make our best guess based on historical data and current market conditions. Previous recessions tell us that the next recession is likely to be far less severe on the housing market than the last one. More than likely, home price declines will be minimal and interest rates will remain low. Buyers may be hit a little harder than homeowners due to increased unemployment and more stringent lending requirements.
So is now a good time to sell? It is, but don’t make your decision based on panic that the market will crash. We’d advise to proceed as you normally would. And as always, take advantage of the seller savings options that we provide our seller clients. We save our sellers an average of almost $7,000 per transaction.
Is now a good time to buy? Interest rates are already at near-record lows and we expect housing prices to remain mostly stable, so it’s still a great time to buy. Our advice is to press pause and see how things develop over the next couple of weeks if you feel that your job is not recession-proof and if you don’t have the funds on hand to cover your mortgage and living expenses for 3-6 months if you were to become unemployed.
We’d love to hear your thoughts about the current situation! And as always, if you have any questions you can reach us at 281.691.6177 or info(at)origenrealty(dotted)com.