The most likely immediate impacts the coronavirus epidemic will have on the real estate market are lower interest rates and lessened access to Realtors.
“We are still trying to measure what the impact is. It’s still too soon to be able to say what the overall impact is going to be,” Gene Wunderlich, vice president of government affairs of Southwest Riverside County Association of Realtors, said.
Some impacts might not be negative.
“If there’s a good thing, it’s that interest rates will dip and make housing more affordable,” Wunderlich said.
Mortgage interest rates are usually based on Federal Reserve interest rates, and the Federal Reserve has lowered that rate in an attempt to stimulate the economy.
“The Fed reduced their interest rate to essentially zero,” Wunderlich said. “Ultimately interest rates will probably drop. It’s a little bit easier for people to get into a home for the first time.”
That adjustment could increase sales of homes on the market.
“We could see fairly stable sales throughout the year,” Wunderlich said. “Depending on how long it drags on, that could change.”
Lower interest rates allow the buyer to purchase the home at a lower cost without reducing the seller’s revenue. If the impact of the coronavirus quarantine affects demand, some potential sellers may delay putting their homes on the market.
“The forecast for the year had prices going up,” Wunderlich said. “February was a very strong month for our market. The market was looking really good coming out of the end of February.”
January and February are usually slow months for the real estate market.
Although limited interpersonal contact is still allowed, some individuals are wary of being near strangers.
“The real estate industry is also grappling with how to do business in this environment,” Wunderlich said.
A real estate broker or agent representing a potential buyer often transports the customers in their car. An open house puts strangers on the seller’s property even if the seller is still living there.
It doesn’t eliminate the need for real estate sales, especially among customers who are relocating and need a residence in their new community without still paying for their former home.
“They need to buy a home or they need to sell a home, so that part hasn’t changed,” Wunderlich said.
Real estate offices may be closed to strangers, and the social distancing has caused more Realtors to work from home or other remote locations.
“The offices are largely closed down. Realtors are still out there working,” Wunderlich said.
That is also the case with the Southwest Riverside County Association of Realtors, he said.
“We’re still kind of skeleton staff. We’re available to answer questions,” Wunderlich said.
The SRCAR works with its members rather than the homebuyer or home sellers.
Educational workshops have been canceled due to the avoidance of large gatherings, and the Southwest Riverside County Association of Realtors has also canceled its Legislative Week trip to Sacramento in midspring.
“Those are the main impacts that we see right now,” Wunderlich said.
When a buyer seeks a mortgage, the lender makes a preliminary determination whether the buyer will be able to make the monthly payments. The loss of jobs may cause homes to fall out of escrow.
“That will probably derail some deals,” Wunderlich said.
In some cases that will be the buyer’s decision not to make a major commitment without immediate income. Many mortgages are for 30-year periods, and lenders realize that economic circumstances may change over the 360 months when payments are made.
“I don’t think it will have an impact on the 30-year mortgages,” Wunderlich said.
Governmental action has been taken to protect homeowners who have lost income, and in some cases the lenders are voluntarily extending payment periods.
“The state and the federal government have come out now with some rulings that are forcing banks to halt or delay any foreclosure activity,” Wunderlich said.
Some lending institutions are also waiving interest for late payments.
Wunderlich has been working with the Small Business Administration and with the United States Department of Housing and Urban Development.
“I’m sorting through almost daily conference calls,” he said. “Everybody’s trying to react. It changes daily. They’re trying to make additional small business loans available. Everybody is really trying to mitigate the negative impacts as much as possible.”
Lenders and real estate professionals expect an approximately 4% foreclosure rate under a good economy. The distressed rate includes “short sales” in which a home is sold quickly specifically to avoid a foreclosure, and in the SRCAR cities the distressed rate is 2% or less.
“Late payments have declined,” Wunderlich said.
Wunderlich thus doesn’t expect a significant increase in short sales.
“We’re not going to see that immediately. It’s going to be at least six months or so,” he said.
Those who are uncertain about their own economic future may delay buying property.
“We were just starting to see millennials come into the market on a broader scale,” Wunderlich said. “They’re starting to come out of their parents’ place. They’re starting to form households.”
In the San Francisco area and in parts of Los Angeles County a significant percentage of buyers are foreign nationals, so travel restrictions could affect home sales elsewhere.
“That part of the market is completely blocked off right now,” Wunderlich said.
The restrictions on large gatherings include government public hearings. City councils or the Riverside County Board of Supervisors may continue to place routine noncontroversial items on their agenda but may postpone hearings on large development projects which would attract numerous citizens.
“We’re hoping that we don’t have to delay anything any more than necessary,” Wunderlich said.
Staff of the appropriate local government departments will still be accepting plans and other documents, so Wunderlich doesn’t expect the processing of developments before discretionary decisions as well as the ministerial permits for approved projects to lag behind schedule.
At the state level more than 200 pieces of legislation have been introduced to address the availability of affordable residences.
“The state has essentially a housing crisis,” Wunderlich said.
Developers and municipal permit issuance have addressed that in southwest Riverside County.
“All of our cities have actually been pretty aggressive in newer home construction,” Wunderlich said.
Uncertainty about the market may delay the building of homes, and since large development projects have a large number of workers the attempts to contain the spread of coronavirus by minimizing interpersonal contact may also limit homebuilding.
“Likely they will slow construction to some extent,” Wunderlich said. “Long-term that’s not going to help to ease the housing crisis that we’ve got.”
The major concern is the effect of a long-term quarantine on small businesses.
“If we lose a quarter to a third of our small locally owned businesses it’s going to make recovery more difficult,” Wunderlich said. “That could impact us as well.”
How long the situation lasts will thus determine the impact for the remainder of the year.
Joe Naiman can be reached by email at Jnaiman@reedermedia.com.