Here’s something crazy: The other day, in the middle of self-quarantine, I had a serious conversation with my wife about selling our home in San Francisco. We love our house. We have no desire to move at the moment. And we’ve been under some of the strictest shelter in place directives in the nation.
So, what were we thinking?
Home prices are stable… For now.
Whereas stocks can swing wildly over the course of a day or week — COVID-19 caused the Dow to drop 40% between February and March, for example — prices in real estate must overcome inertia to rise or fall. Changes to housing supply and demand don’t happen overnight.
At the start of my career as an early-20-something associate cranking through spreadsheets at Morgan Stanley, we conducted an analysis on what drives home prices. The research accounted for 30-plus variables such as wage growth, economic cycles, interest rates, etc. We discovered that if you’re trying to guess what home prices are going to do in any given quarter, there is one variable that is by far the most predictive. And that variable is:
Home price trends in the two quarters prior.
In other words, if prices are going down, they’re probably going to keep going down. If they’re going up, they’re probably going to keep going up. Home prices tend to change in big rolling gradual waves, not zig-zags.
To be clear, the coronavirus hitting the U.S. marks a very acute disruption to our economy and our lives. I don’t believe that the previous two quarters of home prices will predict exactly what happens in the next quarter.
However, the concept of inertia still applies. Yes — home prices will face pressure because of COVID-19, there’s no doubt about it. As tens of millions of Americans lose their jobs over the span of a few months, overall demand for housing will suffer and that will eventually trickle into home prices.
But that hasn’t happened yet. In HomeLight’s April 15 Flash Poll, 75% agents we surveyed said that home prices were still holding steady in their market. There’s that inertia at work. Moreover, so many sellers have pulled their listings off the MLS, a lack of inventory has buoyed the market. Anyone listing now will have the undivided attention of buyers.
It’s going to take time for the trend to materialize, but when it does, prices will remain low for a while and take longer to bounce back than during other market cycles.
That brings us back to the conversation with my wife: So, should we sell our house now?
No one can predict the future, but we can sense a shift
My wife and I considered putting our house on the market because, under pressure from an economic crisis, conditions in the housing market will change.
The housing market was hot deep into 2020. As recently as mid-February, reports of a seller’s market were up 33% year over year. The percent of agents who said they believed home values would rise over the next six months had nearly doubled over Q4. Home prices were also up 8.0% YoY in February 2020, marking 96 straight months of YoY gains.
I believe those who sell their home now will ride the coattails of what was a robust and bullish real estate market before coronavirus entered the picture. Those who wait will almost certainly face price pressure unless they can hold off for the economic recovery.
It may still be a good time to buy a home if you’re obtaining financing and have a long-term time horizon.
Although sellers will continue to demand high prices rather than accept discounts at this point, buying a house is sure to be less frenzied and competitive now than it would be under normal spring selling conditions.
Additionally, at the time of writing, mortgage rates remain at historic lows with the 30-year fixed averaging 3.33%, and no one knows for sure how long they will stay there. If you remain in a strong financial position (more on that below), and have a long-term time horizon for this purchase, locking in a low rate and holding onto the property through the next market boom could be advantageous.
But if you aren’t sure how long you plan to stay in one place, hedge your bet accordingly. You’ll need to wait a long time to be able to sell without taking a bath.
If you’re in the midst of buying and you need a mortgage, line up your financing immediately.
The coronavirus crisis is putting a lot of pressure on mortgage markets. On Monday, April 13, major lender JP Morgan issued a mortgage overlay tightening its lending standards to require that borrowers put down at least 20% and have a credit score no lower than 700. That’s just one example — lenders are implementing stricter standards across the board as unemployment soars.
We don’t know exactly what’s going to happen, but it appears the lending landscape could be changing very quickly compared to what buyers have been used to in recent years.
That said, if you are a buyer who needs a mortgage, and if you’re planning to live in the home you purchase for at least 5-10 years, it’s probably a good time to borrow so long as you have:
- Good to excellent credit
- Plenty of money saved up (not just your down payment but also three to six months of total housing expenses as a cushion)
- Job stability in some sense, whether your company appears to be doing fine or your industry in general isn’t positioned to be hit as hard
We’d also recommend that you avoid shopping for homes at the very top of your price range. If an overlay is imposed before you close, you could suddenly not qualify anymore for your loan.
Investors and all-cash buyers should hit pause.
Meanwhile, if you’re an investor or an all-cash buyer, I see no reason to buy now. If you aren’t financing the deal, you don’t stand to benefit from favorable mortgage rates. You also don’t want to risk buying at the market’s peak without a long-term selling timeline, which could force you to sell at a loss. I recommend in that case that you wait on the sidelines for the pressure on pricing to occur.
The times are changing
At HomeLight, we’re in constant communication with the best real estate agents across the nation and track real estate data fanatically. So, here’s what I know:
A lot of listings have been pulled off the market, and not because people don’t want to sell. They’re worried, I believe, for two reasons. Number one, they’re concerned they won’t be able to sell due to a lack of buyer interest. And number two, they’re scared for their health and safety.
Buyers are still there… and hungry!
What we’re seeing, at least anecdotally, is that while there are fewer buyers now than in prior months, there are also dramatically fewer listings. Buyers are still active and acting fast.
For example, one buyer was so eager to purchase one of the homes we owned through our Trade-In program that they bought it from us before it even hit the market.
If you need to sell, it’s my belief that you should secure an offer now. In a few months, the comps used to price your home could be 15% lower.
The old days are gone
Real estate, as they say, is traditionally a “contact” sport. There’s a lot of human interaction and that can feel at odds with this situation and all of our personal safety.
We are living in unprecedented times with a lot of fear around exposure to an invisible, dangerous virus. It is something out of a nightmare. Our own health and the health of our loved ones will always be paramount.
What’s clear is that no one should be comfortable with a traditional home-selling process for the foreseeable future.
At the same time, housing is a basic need. The reality is: Many people are adapting to this. They’re not freezing their decision to buy or sell. They’re pressing on. Life events like starting a family or relocating for a job, drive people to move. That will happen at some level even as transaction volume falls.
We’re navigating uncharted territory, but help is out there
Had my wife and I decided to go forward with a sale, I would want to know: Is selling even an option right now? Is it safe?
With this in mind, at HomeLight we’ve rolled out our new Move Safe Certification program that recognizes real estate agents who have the best tools, technology, and practices to help clients buy and sell safely during COVID-19.
To be Move Safe Certified, an agent must meet certain criteria including:
- The ability to meet clients virtually
- Using thorough cleaning procedures for showing appointments
- Using an e-sign platform for the transfer and signature of disclosures, offers, and closings (where possible)
- Limiting showings to serious buyers
- Providing a baseline online presence for listings
Other “Move Safe” offerings that are suggested (but not required) will appear as a bonus on the agent’s profile page. These may include virtual staging capabilities, aerial photography options, the use of a coronavirus addendum in their purchase agreements, and more.
We want to make it as easy as possible for people to find agents who are doing their part to protect their clients and ensure that our platform reflects what people care about most during these times — it’s certainly what I’d want as a real estate consumer right now.
(Note that if you’re under some kind of shelter in place order and real estate has not been deemed essential in your city, county, or state, any services that cannot be done remotely will likely be on hold. If real estate is still operational where you live, then it’s a matter of personal choice and taking the right precautions).
Although I’m not going to sell my home right now, I get what it’s like to try and decide. I wanted to share my thinking in the event it helps even one person grappling with tough decisions about real estate during these unprecedented and difficult times. And I hoped to send a message that resonates beyond “we’re in this together.” What’s important is that there are real resources available to assist people buying and selling homes in these times. We’re here to help in any way we can.