Denver Real Estate and COVID-19
Wow, what a turbulent few weeks. Just a month ago, it looked like the real estate market was gearing up for another historic selling season. Then we all know what happened. You might be wondering, “what is going on in the real estate market,” or “how has the corona virus effected real estate”?
Let me first acknowledge those who have been affected by COVID 19. From those who have lost, suffered and passed away to the incredible strength of the medical community. From the doctors putting in overtime to the nurses making sacrifices every day, they are the true heroes here. They lay it all on the line for the betterment of others every day. This has always been the case, and especially now. My thoughts and prayers go out to you all.
In a month where we saw a tumbling stock market, erratic interest rates and rising unemployment, the real estate market remained relatively strong. We started off the year with a red hot market. February reflected a historic low inventory and 28% of properties going under contract in the first five days. We had a strong market with existing home sales at a 13 year high, tight inventory, and strong demand.
Fast forward to post shelter-in-place order. A lot changed in the industry. First, we saw over 700 homes pulled off the market. People became fearful of people going through their homes or the state of the economy. That is nearly a 12% drop! Secondly, we saw a dramatic reduction in foot traffic. According to ShowingTime, showings dropped 50%.
One would think that no one has been out buying the last few weeks. However, If I go into the MLS and search the last 21 days, going back to March 17, I see 3150 new homes come on the market. I also see 3315 that went under contract, which means the demand is right there if not greater than supply.
Now, it’s too early to tell the effects of what is going to shift in the coming months Real Estate Market with the Corona Virus. There are a couple of hurdles we have to jump through to keep our momentum: Demand, interest rates, and inventory.
First, we need to keep strong demand. The greatest threats right now to demand are unemployment and lending practices. With the allowance of forbearance putting pressure on mortgage service companies, originators and banks are tightening their qualifications on credit score and DTI ratio. Which means, they are qualifying fewer people and not lending as much money to them.
The second is interest rates. We need them to stay low to keep affordability high. The Fed announced a couple of weeks ago 700 Billion in Quantitative Easing, providing liquidity to the market and keeping interest rates low. Usually, when the stock market gets worse, people rush their money into buying long term bonds, which means lower interest rates on long term money (mortgages). However, with the Fed selling nearly 1.2 trillion in treasuries, there is a possibility off too much inventory and not enough demand on long term money. If prices drop to meet demand, yields, and interest rates, move higher. This is a dance to keep your eye on.
Last, we have inventory. Low inventory has been keeping prices appreciating for years now. March ended with 5700 homes on the market, an 8% drop year over year from last March. Builders were already under tasked to play catch-up, and with recent issues with finding workers and supplies, many have put a halt on building. We are seeing the largest group of millennials hitting prime buying age in their early 30’s with housing demand continuing to increase. I am actually anticipating even less inventory this buying season out of health, safety and economic fears. As long as we continue to have strong demand, low interest rates and low inventory, we will continue to see price appreciation.
I don’t want to paint a rosy picture here, because there are a ton of variables that we don’t know how they are going to play out. Were in a recession, let’s own it. Don’t get wrapped up in fear just like the fear for the corona virus. There are undoubtedly new obstacles to overcome on both the buyer and seller side. Though we did see a 50% drop in showings, Showingtime also indicated that it took 30% fewer showings for homes to go under contract. What does this mean? It means that if you want your home to sell, it needs to be priced right and in good condition from the get-go! You only get one chance at the limited number of buyers looking, so do let them pass you by. There are still plenty of ready, willing and able buyers out there. The market has just become extremely fragmented, and it is more critical to structure a solution to give you peace of mind.
Let’s think positive. Use this as a time to get creative and lean into technology and fragmentation. There are still opportunities in every market.