Why COVID-19 Won’t Lead to a Housing Crisis

The Housing Crisis Isn't Coming....

While it might feel like we’re entering a quarantine without an end in sight and the economy is suffering, this does not mean we’re about to enter another housing crisis. If you’re a buyer waiting for the market to crash to make your move; I have bad news for you. It’s not going to happen anytime soon.

By digging into past experiences, historical trends and understanding the different valleys and peaks of housing crises in the past, we’re able to evaluate our current situation a little better. Although a global recession is likely to happen, it’s important to take a look at what’s happened in the past and how the housing market has come out on top during hard times.

Today’s Market is Significantly Different From 2008’s

Everybody remembers 2008. Whether you owned a home or not, the recession from 2008 affected nearly everyone financially. Fortunately, today’s market is not like in 2008. In 2008, housing was the main factor that triggered the recession. With easy-to-access mortgages and accelerating home price appreciation, excessive equity-tapping, inventory surplus and much more. Today, housing is not a factor that can cause a repeat of 2008.

This week, Goldman Sachs released its GDP forecast. Although there is a decline in growth in the first half of 2020, the second half of the year will show significant growth that leads into 2021.

Goldman Sachs GDP Forecast

The Chief Economist at Realtor.com, Danielle Hale also gave some input into our current economic situation. She believes if there is a recession that it will be different than the one that occurred in 2008. During that time, the market unraveled quickly and recovered slowly. This time around she expects things to be milder because there is no dysfunction in the banking system or people overleveraging their mortgages.

These two sources suggest that we’re only experiencing a momentary event in time, not a collapse of the economy. The sources believe we will recover quickly unlike in 2008 which took the market four years to rebound from. Although today’s situation poses many financial challenges, a recession will not repeat what happened to the housing market crash in 2008.

Recessions Don’t Equal Housing Crisis

If you look at the past five recessions in American history, the values of homes appreciated in three. In 2008, home prices dropped nearly 20%, but the recession had many different circumstances. In 1991, home prices only depreciated by less than 2%. From the graph to the right, you can see how homes appreciated or depreciated during different recessions. With this information in hand, there is no reason to assume your home value is going to drop this year. If anything, it will appreciate even more.

Housing price changes during recessions

We’re Confident About What We Know

There are many concerns about the global economic impact of COVID-19 right now in addition to the health and wellness of our families, friends and loved ones. According to Bloomberg, the economic impact from COVID-19 will depend on how long the virus lasts and whether or not governments will loosen fiscal policies enough to let markets avoid freezing.

Although we don’t know the exact impact COVID-19 will have on the housing market, we do know that housing itself won’t be the cause. Housing will always be an essential part of life, everyone needs a place to live.

Why You Should Buy a Home Now

If you’re in the market for a new home, now is actually a better time than ever to purchase a home. Mortgage interest rates are still relatively low. Although they saw an increase this week, Freddie Mac’s chief economist, Sam Khater claimed the increase was due to the high demand for refinancing when rates dropped.

The current mortgage interest rate is3.7%3.7%for a 30-year fixed mortgage.

“Money is going to be cheap until the virus news stops, so it’s a great time to buy or sell and take advantage of the situation! The Fed had their 2nd emergency rate cut Sunday night, cutting rates by 1.0% in an effort to stop the decline of the economy due to the Coronavirus. This rate cut will affect short term debt (<5 years) in the immediate and will take time to start affecting long term debt such as 30-year mortgage interest rates. However, another part of the meeting they talked about quantitative easing and agreed to buy back 700 billion securities, 200 billion of that is mortgage-backed securities. This week has already seen a dramatic improvement in rates due to the initial 40 billion they deployed on Monday. As the Fed slowly deploys the rest of its capital, this is going to push rates down even further. I would expect the buyback to last around 1-2 months so there’s a small window of opportunity to lock in a low-interest rate.”

- Morgan Orr, Loan Officer with Peak Finance Company

If you’re interested in buying or selling a home right now, don’t worry, you can still view homes online! If you're selling, we're setting up virtual tours and virtual open houses for buyers to attend. Take advantage of these low-interest rates to buy your dream home today!

Contact me today to get started. Please call/text (619) 559-6548 or email me at shirley@shirleysmith.com

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