How the Coronavirus Could Impact the U.S Housing Market
A report by Bloomberg states that the coronavirus outbreak could be a “truly disruptive pandemic.”
The death toll from the virus is approaching 3,000 with more than 80,000 confirmed cases. New cases in Italy are now shutting down the richest section of its economy. Additionally, Oxford Economics reported that an international health crisis—such as the coronavirus—could be enough to wipe out more than $1 trillion from the global GDP.
With the economy already feeling its effects, another sector being impacted by the coronavirus is the housing and mortgage industry. A report by Markets Insider revealed the growing virus has caused mortgage rates to continue their downward slide. The report found the average rate for a 30-year fixed-rate mortgage hit 3.34% on Monday. The report says mortgage rates are impacted by the U.S. Treasury Yields, which have fallen as investors will “flock to so-called safe-haven assets” amid fears that the virus will slow global growth.
On Tuesday, the yield on the 30-year US Treasury bond was still at 1.8%, a record low, while the 10-year yield fell to 1.37%, its lowest since 2012.
Realtor.com’s Chief Economist Danielle Hale said that there is limited knowledge on the Coronavirus, as well as its “human and economic impacts.” “There have been periods when it seemed that the virus might be relatively contained as with the SARS outbreak many years ago,” Hale said. “New information suggests that COVID-19 may be more easily spread and thus will have more wide-spread impacts. But we are still learning, and as we learn more, markets will adjust to price-in this new information.”
The Wall Street Journal reported earlier in February that the Chinese real estate market has plummeted 90% since the virus’s outbreak.
Eddie Shapiro, founder, President, and CEO, Nest Seeker International, said any time frame for recovery cannot be anticipated until a strong enough vaccine is developed. “As of now they still anticipate months … If we judge by the first couple of months of the magnitude and the response around the world we are probably looking at years before it will stabilize,” Shapiro said. “You have two battles going on, one is the actual lockdown and physical loss of business and two is the public image battle. This is hurting the China brand in so many ways and will probably for a very long time.”
However, one thing that the coronavirus could lead to is more investment from Chinese buyers in the American real estate market. Shapiro said Chinese investors have a lot of relationships within communities that draw investments near various “Chinatowns” in core cities. “There is a bit of a herd mentality that is mostly based on referrals and confidence within the community, so you have concentrations in New York, Los Angeles, and San Francisco, but also markets like Vancouver, British Columbia,” he said.
The possible growth of Chinese investors into a housing market that is already starving for inventory may not be ideal. The National Association of Realtors recently reported that total housing inventory, while up 2.2% in January 2020 from December 2019 to 1.42 million units, is the lowest inventory level recorded since 1999.
Shapiro, however, said “we only benefit” from an influx of Chinese investors. “Now that the U.S. economy is stronger than ever including unemployment, growth, and stability, U.S. property is a flight to safety,” Shapiro said. “If we have some influx in certain markets this will only help absorb the product faster and continue to boost our real estate markets.”
Hale said Chinese buyers represent the largest share of foreign buyers of U.S. residential real estate. She also said they’ve faced headwinds in recent years from capital controls in addition to rising home prices...
