Buying real estate can be a challenging feat. As such, there is little or no room for errors, which is why working with a professional real estate company is important. Out of nowhere, an unseen force is making things even more difficult. It has kept not just the world, but the real estate business at bay till further notice.
Do you know who?…..It goes by the name of Covid-19 (Coronavirus). Engineered by this outbreak, which has hit not just the US but also the world at large, some researchers claim things may get worse before it gets better. This outbreak can effect the real estate industry in multiple sectors and markets. Making its effects solely dependent on how long this economic shutdown lasts.
With that said, most of the sectors that have been hurt the most amidst this crisis include hotels, restaurants, and bars. As well as other entertainment retail or tourist-driven areas, followed closely by retail and housing (predominantly second-home as well as luxury homes).
Real Estate Industry Right Now
With much-needed supplies by builders and real estate developers being interrupted, more workers are now staying at home and businesses are shutting down as the enforcement of quarantines and curfews. In addition, the increased rate of layoffs will create a contraction in the customer’s spending power, while triggering a downward slope of economic activities. Amidst this global outcry, businesses and factories in China have all resumed their operations.
Which signals a sign of brighter days ahead especially for their real estate market. With that said, China took drastic measures, which the United States is slowly copying now. However, there is some bright light at the end of the tunnel so let’s dig deeper and find out.
The Outbreak Will Be Different Regionally
The economic effects of the Covid-19 outbreak, as well as the disruptions it caused in the real estate industry, vary from one state or metro area to another. For instance, Florida is exposed considering it’s a state with a wide array of industries. With the most common being
- Sports Venues
- Restaurants and Bars
- Cruise Ships
- Theme Parks
- Conference Centers
With that said, the economic impacts amidst the Coronavirus outbreak in Texas had witnessed a collapse in the oil prices. A fall in the oil prices is affecting oil producers, which of course isn’t ideal considering it will bring economic drag to certain parts of Texas. Taking to mind these issues sandwiched with the inception of social distancing efforts already enforced by states, imagine the effects it will have on the aforementioned industries.
Coronavirus Outbreak on Housing and Homebuilding
Since the outbreak of the Coronavirus, a wide array of real estate developers and contractors haven’t been the same. This is evident with the demand pullback from home shoppers staying home in droves, as well as the supply impact of materials that they normally import from China. According to the National Association of Home Builders (NAHB), China is responsible for more than 30% of the materials used in the US.
Based on a survey conducted by NAHB, more than 80% of respondents admitted to the fact that the advent of the Coronavirus has a hostile effect on the demand for homes by actual and potential home buyers. As such, they also believe that the aforementioned 80% could rise by 100% with the advent of lock-downs as a measure to curb the spread of the virus.
In addition, a further 54% of the sampled respondents admitted to the difficulties and challenges faced in the acquisition of building material to meet completion deadlines for homes. With that in mind, builders are also experiencing a massive fall in the sales of real estate. This is evident with the growing concern about tighter lending conditions for non-conforming mortgage loans.
As such, self-employed buyers or those with debt-to-income ratios surveyed to be higher than 43%-45% are now more than ever faced with varied challenges getting mortgages. Coupled with all that is going on around the world, builders keep hanging them on the fence because of their inability to either acquire land or support development spending.
The Rental Apartment Industry and Mortgages
Taking to mind the advent of the covid-19 outbreak, the rental property industry is now preparing to handle tenants with little or no income during this period. As such, the industry is gearing up as well as preparing to deal with a wide array of tenants who have been furloughed because of this outbreak. Notably, those who lost their prime source or sources of income and are unable to support their monthly rents.
Amidst this crisis, many tenants will be forced to ask for forbearance in April and even May if things fail to go back to normalcy.
The Real Estate Industry after this Pandemic
One of the worrying facts associated with this economic disruption and which proves very problematic is the fact it affects both supply and demand. On the part of the demand, the answer to the question “what lies ahead?” depends solely on containing the virus and finding a lasting solution. When demand increases, customers will start spending again and the economic engine will begin to hum once more. There is a possibility that the commotion plaguing the supply side this time around may only be restored in the long term.
On the other hand, demand will drop if the virus is not contained. The optimism, especially in the US, is that, unlike the great recession, the moment the virus is contained, supply chains will gradually return to its former glory. This cycle of activities in the real estate industry could look more like a “V” or a narrow “U”. Meaning, a potential upturn in the second half of 2020. Only time will tell, but don’t hope that it will rebound so quickly.
The delay in rents, mortgage payments, and a limited supply of material are causing tighter lending standards. Not to mention, the completion of already engaged real estate projects are on hold in most areas. Some experts are even saying that the mortgage industry is even on the brink of chaos.
Doctors and Physicians are doing everything they can to deal with the pandemic. Also, the government is passing out sanctions to keep the virus from spreading. We need divine intervention to put an end to this pandemic and for the world and the real estate industry to go back to normalcy.
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