Coronavirus Impact on the Real Estate Market

Stocks crashed, crude oil plummeted, what’s next?

While I’m being cautious about jumping to any sort of premature conclusion, I want to share a few bullet points and some perspectives on how the Coronavirus, also known as COVID-19, have impacted the real estate market.

In light of the recent stock market volatility, school closures, supermarket clean outs, I have been receiving questions from people regarding how the real estate market is being impacted under this world-wide epidemic.

With the risk of jumping to premature conclusion — in short, from where I stand, the real estate market has not been impacted. Or if there is any impact coming, any of that ripple has yet to take shape.

You see, the recent volatility in the broader market has to do with a few underlying economic forces interacting with one another. The primary factors include: Coronavirus putting a lot of pressure on international traveling, the healthcare system, world trade, the education system, amongst many other impacted markets. Meanwhile, we also see the crude oil prices fall through the roof due to OPEC and Russia failing to reach an agreement, creating an historical energy market breaking down.

All of these have created secondary impacts. The Fed dropping interest rate to zero, bond yield continued to slide as investors seek security in an uncertainty market, and people staying home in attempt to self-quarantine in order to mitigate the transmission rates of the virus.

Housing market fortunately not been in the direct line of fire under any of these factors. Sure, Realtors are now also doing their best to keep social distancing. But here is a key takeaway — real estate market and stock market are historically uncorrelated, except in 2008–2009.

Housing market fortunately not been in the direct line of fire under any of these factors.

Take a look at this Case-Shiller Home Prices Index in this graph, showing the appreciation rate of real estate in correlation to the stock market. You can see that the movement of both asset classes are not directly tied together.

Understand that housing value is correlated to other factors, such as: population growth and the employment rate. Where none of these are a major factor in the current epidemic. While the rest of the world is reacting to the direct impact of the virus, and the secondary impacts of the epidemic, interest rates remain low, decreasing the cost of borrowing, all the while fueling a stronger demand in home purchases.

Housing value is correlated to other factors, such as: population growth and the employment rate.

As stocks become more volatile, reacting to weekly-changing policies, and bonds heading towards negative interest rates, investors are flocking to other alternatives to reallocate their asset elsewhere.

Home value and rental income are less volatile in nature. People always need somewhere to live. Beyond that, there is tax advantage to real estate ownership, and lastly, most real estate purchases are leveraged — thus magnifying investment returns. If you are an income investor, real estate now looks like a safe harbor generating a decent, sustainable and less volatile return. All of above factors are creating the perfect storm in sustaining a healthy housing market.

There is one key factor that I will be keeping a keen eye on — how is the virus affecting the job market? If labor market loosens, mass-layoffs start to take shape, a weaker economy where small businesses goes from boom to bust, then housing demand may decrease, leading to a housing market decline. A lot of this will depend on how effective the Fed’s emergency policies are, your guess is as good as mine.

If labor market loosens…then housing demand may decrease, leading to a housing market decline.

Lastly, real estate market is fundamentally local. If your town’s economy is highly dependable on a particular airline employing the bulk of the town’s population, this town’s real estate prices may be impacted more negatively than others. Well, there is always a possibility the local developers crew-members get infected with COVID-19 and new developments come to a halt. Who knows? Two weeks from now, I may be sticking my foot in my mouth.

About the Author

Danny Lau has set up several successful small businesses, he is a top real estate sales professional, and he shares real estate investment advices through his YouTube Channel.

Disclaimer

This article is intended for informational purposes only and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.