Coronavirus or COVID-19 has been a humanitarian challenge that will surely have a lasting effect on the way we live, interact, work and play. While it’s terrifying millions of people worldwide, its effects on the world’s financial system should not be underemphasized. Since this is a concern to even the smallest among us, how does it affect the U.S housing market?
Foreign Demand for Real estate properties could see a boost
Like always, real estate has again become a haven for investors as it remains calm and stable in the current storm caused by the pandemic. However, because the U.S. housing market appears to be calm and less affected by COVID-19, foreign investors (Chinese buyers) are becoming interested in the market thereby causing a spike in buying activities in the country. This seems to be good news as investors are optimistic that this will impact the real estate in a positive way.
Not so long, foreign investment (especially from Chinese investors) in the U.S. housing market took a sharp decline but after the 2019 anti-government protest in Hong Kong, there was a spike in the activities of Chinese buyers in the United States. This is because investors in those regions lost confidence in the Chinese housing market; therefore, they quickly move their funds to buy assets in stable areas like the U.S. Taking a closer look, the current situation of things is somehow similar to the above example. So, because investors’ confidence in the Chinese real estate market and other foreign markets are faltered, they are moving their funds to stable markets like the U.S., Australia, and Canada. So, based on all indicators, there will be a lot of home buying activities in the market post-COVID-19.
Expect a seller market
In March, the U.S. mortgage rate on a 30-year term took a free fall to nearly 3.29%, which overshadow the previous low set in 2012. What does a low rate mean to both buyers and sellers? For the vast majority of American homeowners, this means that they are in the best position to refinance their property. And for buyers, it means that they can decide to lock in rates and buy a property.
However, the most interesting thing about the situation of things now in the mortgage market is that homeowners can easily refinance their property from a 30-year mortgage to lower terms—15-, 20- year term—and still pay off their mortgage with similar rates if they were to be four or five years ago.
The one single problem with a lower mortgage rate is that it creates a situation where homebuyers enter the market in the hope of finding and securing good deals. However, because of the low inventory, this will increase the demand for property putting the seller in the position to increase property price at will, thereby creating a seller’s market.
US Developers will need to wait longer for delivery
Earlier this year, a report on the National Association of Home Builders’ website confirmed that builders are so optimistic about 2020, thereby they are inclined to begin home construction. However, all indicators (rock-bottom mortgage rate and low inventory) have already confirmed this, which means that the stage has already been set for a competitive homebuying season.
The bad news is that the U.S. home builders will have to wait longer for home building product delivery. Why? According to the National Association of Home Builders, one-third of the total home building materials used in the U.S. are imported from China. However, because of this pandemic, importation, and exportation of goods to and from any part of the world has been cancelled; which means, there will be a significant delay in product delivery raising concerns on the supply side.
We should keep in mind that the U.S. housing market is already experiencing low inventory which means there will be a spike in the demand for property and therefore increasing the competition. For investors (especially fix-and-flip investors) this is good news as they will receive multiple offers on your properly.