What Impact Might COVID-19 Have on Home Values?
A big challenge facing the housing industry is determining what impact the current pandemic may have on home values. Some buyers are hoping for major price reductions because the health crisis is straining the economy.
The price of any item, however, is determined by supply and demand, which is how many items are available in relation to how many consumers want to buy that item.
What is Supply and Demand in terms of the Real Estate Market? In residential real estate, the measurement used to decipher that ratio is called Months Supply of Inventory. A normal market would have 6-7 months of inventory. Anything over seven months would be considered a buyers’ market, with downward pressure on prices. Anything under six months would indicate a sellers’ market, which would put upward pressure on prices.
In the entire North Tahoe Market, including Truckee, going into March of this year, the supply stood at 9 months – a buyer's market and that number has stayed steady through the today April 28. While buyer demand has decreased rather dramatically during the pandemic, the number of homes on the market has also slightly decreased as have the sales. Sellers in this market seem to be holding steady on pricing as there have not been a lot of price reductions. There are smaller pockets of our MLS area where the months supply of inventory is lower. So its good to talk to someone who knows the different communities in the area. Our market like the national market, homeowners here generally have a lot of equity in their homes so are not as motivated to sell at a lower price. Especially, since we have such an active rental market.
On a national level, there is approximately a 3.4 month supply of inventory which strongly suggests a sellers market. As soon as California lifts its Stay at Home restrictions, I believe buyer demand will increase as interest rates remain historically low.
This information is consistent with the research completed by John Burns Real Estate Consulting, which recently reported:
“Historical analysis showed us that pandemics are usually V-shaped (sharp recessions that recover quickly enough to provide little damage to home prices).”
What are the experts saying?
Here’s a look at what some experts recently reported on the matter:
Ivy Zelman, President, Zelman & Associates
“Supported by our analysis of home price dynamics through cycles and other periods of economic and housing disruption, we expect home price appreciation to decelerate from current levels in 2020, though easily remain in positive territory year over year given the beneficial factors of record-low inventories & a historically-low interest rate environment.”
Freddie Mac
“The fiscal stimulus provided by the CARES Act will mute the impact that the economic shock has on house prices. Additionally, forbearance and foreclosure mitigation programs will limit the fire sale contagion effect on house prices. We forecast house prices to fall 0.5 percentage points over the next four quarters. Two forces prevent a collapse in house prices. First, as we indicated in our earlier research report, U.S. housing markets face a large supply deficit. Second, population growth and pent up household formations provide a tailwind to housing demand. Price growth accelerates back towards a long-run trend of between 2 and 3% per year.”
Mark Fleming, Chief Economist, First American
“The housing supply remains at historically low levels, so house price growth is likely to slow, but it’s unlikely to go negative.”
Bottom Line
Even though the economy has been placed on pause, it appears home prices will remain steady throughout the pandemic. In our market, we are ramping up for our busy season and the market is always changing. Give me a call for the most up to date information!
Information in this article is taken from Keeping Current Matters and the the Tahoe Sierra Board of Realtors and is for informational purposes only. The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Keeping Current Matters, Inc. and Kathy King Truckee Real Estate does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Keeping Current Matters, Inc. and Kathy King Truckee Real Estate will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.