Courtesy of the Virginia Association of Realtors, below is a very real look at the pros and cons of buying and selling during the pandemic.
Q. What do potential buyers need to know about market conditions related to COVID-19?
A. Buyers who are in very secure jobs may actually be in a good position to buy now because interest rates remain very low and other buyers may be sidelined. Those sidelined buyers include those who are taking a “wait-and-see” approach, while others are not in a position to buy a home because they have lost their job, their income has been cut, or they fear their job is at risk. A buyer may find that some sellers are more negotiable on price, knowing that there are fewer buyers out there.
While they might face less competition for homes, buyers will face other challenges. Some sellers are pulling their listings over concerns about the spread of the virus. In addition, some sellers may be apprehensive about making their homes available for in-person viewing. Even if a buyer can make an offer on a home, there could be challenges associated with finding appraisers, inspectors and other vendors to visit and examine occupied properties.
Q. What do sellers need to know about market conditions related to COVID-19?
A. Sellers will need to recognize that despite low interest rates, demand is going to be weaker. As a result, a seller may not be able to command the price that he or she anticipated going into the spring market.
Would-be sellers that have flexibility could defer selling with the hope that the market recovers quickly and demand bounces back. However, at this point, the long-term economic impacts of COVID-19 are not clear. Restrictions related to the virus could last months, with the Trump administration stating that the country could be dealing with cases through August.
Those who do need to sell now will need to work creatively with their REALTOR® to make sure they are marketing their home appropriately, making it possible for potential buyers to view the home, and setting realistic expectations about price.
Q. Is the housing market in Virginia headed for a crash?
A. The short answer is probably not. While there will be impacts on the housing market, we are not expecting the same types of impacts we experienced during the last recession in 2007 through 2009.
There are several reasons why this recession is different.
First, lending standards are much stricter now than they were back in the early 2000s when mortgage financing was easier to come by and people bought homes who may not have had the appropriate financial resources.
Second, and largely as a result of the tighter lending standards, price growth has been very steady in recent years, with prices up between two and four percent, annually. This pace of price growth is in stark contrast to the double-digit price appreciation we saw leading up to the housing market bust and Great Recession.
Third, before and during the last recession, Virginia had a surplus of homes for sale after a ramp up of new housing construction, particularly single-family home construction. We are in a very different situation now, where supply is extremely limited. In February, there was an estimated 2.6 months of supply, on average, across the Commonwealth.
Demand will weaken in the near-term. How fast demand rebounds depends on the severity of job losses and the duration of the overall economic slowdown.
Q. Will home prices fall in Virginia?
A. In the near-term, there will likely be some slowdown in price appreciation and there may be modest price drops in some markets across Virginia. A slowdown in prices results from softening demand as some would-be buyers take a “wait and see” approach and others have to delay a home purchase as a result of a disruption in income.
Longer-term, the impact on prices will depend on when the labor market recovers.
Q. Are there certain parts of the market that could be more adversely impacted?
A. The downturn in the stock market could have an adverse effect on those households who were planning to use stock holdings to fund a down payment. It is likely that this could have a bigger impact on the top end of the market, where financial market wealth is more often used as a source of funds for luxury homes, as well as second homes and investment properties. As a result, Virginia REALTORS®could see a softening of prices of homes in the upper price segments, and these homes could stay on the market longer. These impacts could be more strongly experienced by REALTORS® in some of the higher-priced markets in Northern Virginia, as well as in some of the Commonwealth’s second home markets.