COVID-19 has already begun to affect the economy, but its long-term effects remain to be seen. In the past few months, as cities around the world have responded to the pandemic, the service industry has taken a massive hit, and the travel industry is all but dead. People are spending less money and traveling far less, and businesses have had to make cuts.
So far, earnings have dropped across the board, and many small businesses have been forced to close for good. Unemployment is now a whopping 14.7 percent in the United States.
But how could COVID-19 affect the housing market in the months, or even years to come, and what effects will this have on the economy overall?
Factors to Consider
Obviously, this isn’t an easy question to answer. Real estate experts and economists are debating within their own circles as to how this might play out. There are several important factors to consider:
- Job opportunities and unemployment. One of the most common reasons for moving is the presence of a job opportunity, or the need for one. If there’s an attractive job in a new city, a consumer will likely be willing to move there, and buy a new house in the process. If someone is unemployed, and there aren’t many opportunities in their current area, they may move somewhere with more potential. These effects could strengthen markets that are already strong, and weaken markets that are already weak. That said, we also need to consider the fact that remote working opportunities are now more abundant, and could spark a shift in the types of homes and neighborhoods that people choose.
- Innate willingness to move. The spread of COVID-19 is also affecting people’s willingness (and ability) to geographically relocate. Undertaking a move now would mean coming into contact with many different people, traveling under tight conditions, and dealing with the stress of trying to familiarize yourself with a new area without the availability of bars, restaurants, and other social spots to help you. This could make people far less likely to move—meaning fewer transactions, and more aggressive, seller-sided negotiations.
- Fear and stability. In times of fear, people try to maintain the status quo as a form of comforting stability. If they’re worried about the future, or if they’re recalculating their risk tolerance, they’re probably not going to make a big decision like buying their first house or moving to a new city. Accordingly, this could result in a decrease in demand.
- Consumer spending and liquidity. Similarly, consumer spending has slowed significantly in recent months; in fact, March demonstrated the largest one-month decline in consumer spending since 1959, when the government started tracking it. Consumers are trying to stay liquid, and avoid major investments or purchasing decisions. This could stall markets further.
- Economic stimulus. The United States government is trying its best to keep the economy afloat, sending out stimulus checks to the majority of the population and offering emergency funding to businesses to keep them going. Further efforts in the coming months will likely attempt to preserve economic momentum in these trying times, and could motivate people to feel more comfortable and spend more money.
- Duration. One of the biggest variables in this equation is the duration of the core economic effects of the pandemic. When quarantines begin to lift and businesses begin to reopen, will people be willing to go out and engage in consumer activity? Will the furloughed workers across the country get their jobs back? Will the stock market return to a place of normalcy? And if so, when will it happen? These are unanswerable questions at the moment, yet they’re going to play a massive role in how the real estate market is affected by the pandemic. If everything returns to “normal” in the span of a few months, the real estate market will remain relatively unaffected. But if the effects are longer-lasting and more complicated, it’s hard to tell how things play out from here.
- Eager buyers. There’s also an entire generation of young homebuyers who have held off on buying a home because market prices are too expensive. Many of them are anticipating, and would be eager to see a major drop in price. This could incentivize them to start buying, flooding the market with far more consumers, and stabilizing prices and inventory in the process.
It’s almost impossible to see how the real estate market will be affected by the pandemic for more than a few weeks in the future. There are too many variables, most of which are unknown, to account for. Still, most sources of information appear neither excessively optimistic nor excessively pessimistic, which is a good sign for those who crave market stability.