It's hard to know where to start in assessing the current and future impact the current pandemic is having and is likely to have on the housing market. In this post, I highlight the current status of real estate activities, outline the new protections that are being put in place to protect buyers and sellers against unforeseen events caused by Coronavirus and the legislation that has been put in place to protect tenants. Finally, I share a few thoughts on what the future may or may not hold for the real estate industry.
Can Agents Show Homes?
Over the past few weeks the answer to this has question has changed 3 or 4 times making it hard to keep up.
It goes without saying that the priority, unless there are specific circumstances, is to adhere to the Shelter in Place guidelines. The initial guidance from the California Association of Realtors was that residential real estate was not considered an essential service. However, on March 28th, the US department of Homeland Security, Cybersecurity and Infrastructure Security Agency (CISA) updated its list of essential services to include residential and commercial real estate.
While initially Sonoma County classified Real Estate as none essential, on March 31st it changed its guidance to enable Real Estate services to continue. However what is allowed and not allowed is very specific:
- All showings should be done virtually whenever possible
- Only two people can be in a property at the same time
- Only vacant properties can be shown in person
- Any person entering a property needs to declare to the best of their knowledge they are healthy
- All sellers must give express agreement for any person entering a property
Above all, for the safety of everyone, we all need to conform to the Shelter In Place order through the end of May limiting all in-person interactions to the absolute minimum.
New Protections For Buyers and Sellers
The California Association of Realtors has introduced a Coronavirus Addendum/Amendment to help alleviate ambiguity as to whether a buyer or seller could use the current pandemic as a reason to delay or avoid performance under the contract. The form isn’t required but it requires both parties to agree to it in advance. Its intention is to get the seller and buyer to come to have the conversation about what happens in various scenarios resulting from the Coronavirus pandemic. Some of the scenarios covered are as follows:
-What happens if the buyer and seller have removed contingencies but for some reason it is not possible to complete the transaction? For example the sellers can’t get movers set up or one of the buyer/seller is in quarantine so can’t sign in person.
-What happens if the loan contingency is removed but then a buyer loses their job? This form enables the contract to be cancelled without penalty.
The form enables the buyer and seller to agree additional time for the buyer to remove contingencies or close escrow based on the impact of Covid-19. It also enables the contract to be cancelled if the transaction cannot be completed due to unforeseen circumstances.
Following on from the Governors Executive order which authorized local jurisdictions to suspend eviction for non-payment of rent for reasons associated with Coronavirus, Sonoma County Board of Supervisors passed the Covid-19 Eviction Defence Ordinance which comes into effect immediately for 60 days after the end of the local and public health emergency. This means that no landlord can initiate eviction proceedings during this period for non-payment of rent as related to Covid-19 as long as the tenant informs the landlord within seven days of being financially impact. However, it doesn’t mean tenants can avoid paying. They have 6 months after the expiration of the order to pay back any rent due.
What Is The Likely Impact On The Housing Market?
It is impossible to predict what may or may not happen as a result of the current pandemic. However, as well as having a short term impact on the housing market due to a sharp decline in activity, it will almost certainly have a longer term impact. The California Association of Realtors has outlined what it believes are some of the potential impacts:
Economic forecasts have been downgraded but whether the short term contraction of the economy will lead to a longer term recession is still uncertain.
Mortgage rates will likely remain low or could fall even further meaning the cost of borrowing will continue to make the cost of housing more affordable over the near term.
Many buyers will be put off due to a fall in their own net worth and economic uncertainty but for buyers who can afford monthly payments there is an opportunity to capitalize in an uncertain market
Financial market volatility will like reduce the demand for luxury homes but also create potential opportunities for luxury buyers to get significant price discounts
New home construction will likely slow down, exacerbating an already-tight supply in California. The combination of economic uncertainty and the disruption of supply chains will both likely play a role in slowing down new construction.
What If I Need To Put My House On The Market?
Unfortunately for some people, it is not quite as simple as waiting for things to get back to normal before putting a property on the market. As per the Sonoma County Order mentioned above, preparing a property for the market requires restricting any in-person visits to a minimum. However, it is permissable for a photographer to visit the property to take photos and a video tour.
There is an option to put the property “for sale” on the private site that realtors get access to under a “coming soon” category. A property can remain categorized as Coming Soon for as long as 100 days. This has the advantage that it makes active realtors aware that the property is going to come on the market but it won’t impact the “Number of Days on Market.” This metric starts ticking once the property becomes active on the Multiple Listing Service at the same time it appears on consumer-facing sites. As soon as the Shelter In Place order is lifted the property can be published across all of the online housing sites.
There are a number of real estate businesses such as Compass, Zillow, Redfin who have already made drastic staff reductions as well as reducing sales forecasts by as much as 50%. If there is light at the end of the tunnel it is that before Coronavirus (BC), the fundamentals on the economy were strong. So while 2020 will definitely be a tough year for real estate, I don't feel there will be such a dramatic housing downturn as there was in 2008 because unlike back then, the housing market is not fundamentally broken.