The coronavirus outbreak has created a great degree of uncertainty surrounding the real estate market, as well as the economy as a whole. Past economic fluctuations, and real estate ones in particular, can be informative during times like these. This article provides some ideas on what we may encounter in the Seattle real estate market in the near future.
Shift in Demand
The pandemic’s economic effects may manifest into less people looking to buy and more people looking to sell. This reduction in demand and increase in supply would equate to a clear buyers’ market, putting them in the driver’s seat during negotiations. Expect this supply-demand dynamic to create downward pressure on home prices.
While the supply of new homes may not be very high as of today, there could be hidden supply coming onto the market in the near term, as current homeowners who had no intention of selling are affected by the virus/economy. This could result from a domino effect of unemployment, followed by missed mortgage payments, followed by foreclosures. The sudden increase in supply will drive down prices. New construction will also stall as the preexisting market supply increases.
Distressed home sales are virtually assured to be on the increase as the macroeconomic dynamics in the country deteriorate. Record levels of unemployment applications, job losses and layoffs will ripple across income levels, and in many cases necessitate a home sale in order to alleviate financial pressure.
Investors in the short-term rental market, such as vacation properties or AirBnB, will see worsening demand and low occupancy for the foreseeable future. Quarantine orders, social distancing measures, and difficult travel conditions will discourage or outright prohibit people from even going on vacation, if they had a desire to do so in the first place. Add the economic considerations of job losses and impacts to income, and investors may have no choice but to drop their rates to attract these renters. While painful from a bottom-line perspective, collecting some rent will be better than none and may allow investors to break even on their properties for the time being.
Eviction and Foreclosure Suspensions
Given the extraordinary circumstances, evictions and foreclosures have been suspended, as tenants and mortgage holders fall behind on payments due to the wave of job losses and layoffs. Their inability to pay rent may be exacerbated by other price pressure occurring with food and other items, creating a cascading effect. While evictions would be standard practice under normal times for these renters, they will now be afforded the chance to catch up when restrictions are relaxed, and people can return to work. The same dynamic applies to investors carrying mortgages on their properties – foreclosure proceedings will be delayed and thus they will have some chance to catch up on payments.
Tighter Mortgage Lending
With the Federal Reserve recently lowering interest rates back to zero, expect an influx of mortgage applications for real estate. Many banks are already tightening their lending parameters to reduce the chance of making bad loans under these conditions, such as raising down payment thresholds and credit score requirements.
The pandemic and resultant economic shockwaves are without parallel in our modern history. Real estate analysts can only infer the potential first- and second-order effects from these conditions, using previous market volatility as a guide. We encourage you to call Northwest Property Solutions today at (253) 220-7775 or send us a message to discuss what you can expect in the Seattle real estate market during the coronavirus pandemic.