The world of real estate has been directly impacted by the unprecedented spread of COVID-19 throughout the world and with the US now leading the world in number of coronavirus cases, the aftershocks of the pandemic are reverberating throughout the nation’s economy and having a significant effect on the real estate market.
Impact by Sectors
The virus has impacted all sectors of real estate from retail and restaurants to hotels and housing. Due to the government mandated closures of all non-essential businesses in the hardest hit areas of the US such as New York and California, commercial tenants have lost significant operating income and hence are struggling to make rental payments. Residential tenants are facing a similarly dire situation in the face of mounting layoffs and reduced work hours, while the hotel and short-term rental industry has seen seasonal traffic dry up almost entirely.
Local governments have stepped in to put into place temporary moratoriums on evictions and the Trump administration has recently passed a $2 trillion stimulus package providing checks to residents and loans to small businesses with the hopes that this will ease the economic pressures being felt due to the spreading virus. Furthermore, landlords are offering rent forbearance for the coming month(s) to help ease the hardship their tenants are facing.
Interruptions to the supply chain for building materials are directly impacting developers and as more and more workers work from home, there is a shortage of active staff and slowdown of activity at all levels of real estate management.
What about Homebuying?
On the home buying front, real estate agents are reporting a big drop in demand, and open houses are shuttered in most areas due to the nationwide social distancing and stay-at-home measures that are in place. Agents are attempting to run virtual home tours, but sales are experiencing a direct decline and are predicted to drop dramatically for the next few months.
Buyers are rattled by the overall shutdown of the economy, as well as the increasing job layoffs and the massive dives the stock market has been taking. Potential homebuyers will likely continue to hold off on buying until there is a slowdown in the spread of the virus and more clarity emerges on where the economy and real estate market are headed.
The Future Outlook
At the end of the day, COVID-19 has had a direct impact on both the supply and demand sides of real estate. The future of the real estate market will be dictated by how quickly and effectively this virus will be contained. Once consumers regain employment and start spending again, we will see a marked increase in economic activity overall. The last Great Recession was a direct result of a crash in the housing market, which is not the case this time around. If interest rates continue to remain low and employment levels rise again, we should see a relatively quick bounce-back in the housing industry. In the meantime, if the economy were to detract in the short-term, there will be tremendous opportunity for investors waiting on the sidelines, poised to take advantage of it.