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The potential impact of COVID-19 on the U.S real estate market

A mini house surrounded by coins

For months, the COVID-19 pandemic has been wreaking havoc on the U.S. economy. In addition to causing a stock market crash earlier this year, the pandemic has also forced millions of people into unemployment, as social distancing guidelines and other safety regulations have made many businesses unable to continue their operations.

But what exactly does this mean for the real estate industry? What are the potential long-term effects of the COVID-19 pandemic on the U.S. housing market?  

The effect on home values

Although mortgage rates have fluctuated ever since the start of the coronavirus outbreak in the U.S., they have reached historic lows and could plummet even further. Back in March, there was a significant increase in refinance applications, as many buyers sought to secure lower rates on their mortgages in order to save on costs.

Home prices and mortgage rates however are two different factors. Considering the current economic climate, there’s likely increasing concern among many homeowners that their properties could start to devalue, with many people forced into unemployment and spending declines overall. 

Decreasing prices due to economic recessions

If you take a look at real estate market data during previous recessions in the U.S., you will see that home prices tend to drop during an economic recession. 

The extent of which, however, varies depending on the local market. In high-demand areas, for example, property values are not likely to decline at all. With historically low mortgage rates, buyers whose incomes are not affected may use this to their advantage by buying a home now instead of later. Enough interested home buyers may cause a spike in demand, which can help ensure sellers that they’ll be able to command a decent price for their property.

What previous pandemics could tell us

In this study conducted by Zillow on the impact caused by previous pandemics on various real estate markets, one of the most interesting things they discovered was that home prices either remained consistent or experienced only minor declines. This is because fewer transactions were completed during those times, so there weren’t that many people who were forced to sell their homes at a loss. 

The COVID-19 pandemic, however, may very well be an entirely different thing simply due to the severe impact it has already dealt to the global economy. With that in mind, it’s best for homeowners to consider the possibility of declining home values – at least until our current situation improves and the economy picks up once again. In addition to pushing home sellers into a bad spot, this could also pose problems for property owners who were looking to tap into their home equity during the months or years ahead.

It’s best not to be too hasty, however. Compared to the stock market which tends to swing wildly from time to time, the real estate market isn’t as volatile. Thus, taking a step back and letting things play out might be a smart move. And in case the current global crisis reaches its conclusion sooner than expected, there’s a high chance that homeowners will emerge unscathed.

If you’re searching for Dublin, CA real estate options, work with top realtor Alice Chen today! You can get in touch with her by calling 925.216.0676, or leave a message here.