You cannot turn on the TV or log in to a news site without being bombarded with news about the coronavirus. What is the coronavirus impact on real estate?
Before we answer that question, let’s put the coronavirus epidemic into proper perspective. If you go to worldometer.com , you can see live updates on the progression of the disease.
As of this writing, there have been 122,025 diagnosed cases worldwide and 4,391 deaths, while 66,988 patients have recovered. That translates to a death rate of 3%. In the USA, there have been 1,016 cases and 31 deaths. This also translates into a 3% death rate.
Let’s compare this to the statistics for annual seasonal flu deaths both worldwide and in the USA.
On average, seasonal flu kills between 291,000 and 646,000 annually over the entire planet. The severe annual disease rate is between 3 and 5 million people. There are no statistics for the total number of people infected with the flu virus. Only patients who are hospitalized are recorded.
In the USA, the flu has caused 32 million illnesses, 310,000 hospitalizations and 18,000 deaths so far this flu season. When compared to the current statistics for the coronavirus, there seems little cause for concern, yet the media has chosen to hype it while ignoring the statistics of the general flu. The question is why? Time will tell.
The never-ending media coverage has created some panic and the effects are being seen and felt in the economy. Consumers are hoarding products, traveling less, eating out less, and generally staying at home.
What is the Coronavirus Impact on Real Estate?
As with any “black swan” event, there are both positive and negative effects. Let’s first take a look at the positive effects.
Mortgage rates are now at their lowest level since 1971. The stock market has sold off and investors are moving cash into treasuries which have pushed already low-interest rates even lower.
This is a great time to be purchasing real estate or, if you have not refinanced in a while, it is a great time to refinance your existing mortgage. However, be sure to calculate the costs of refinancing to see if it is worthwhile. Read my post on refinancing here.
The inventory of homes for sale is shrinking. With the coronavirus threat, sellers are delaying putting their homes on the market. This is resulting in higher prices. However, with the combination of lower interest rates, unit sales volume should be unaffected. This may change depending on how long it takes for the virus to run its course.
Now is a great time for you to sell that property you have been thinking about selling. This is especially true if you have a property that is not producing the ROI that you had anticipated.
Shortage of Building Materials
Many building materials are manufactured in China. The shutdown of factories in China is beginning to affect the supply chains in the USA and will lead to shortages at your local building centers.
Homebuilders will be affected the most and will result in fewer new homes coming to the market. This will result in a higher demand for resale homes, especially on the lower end of the market.
Access to Private Capital
With the exodus of capital out of the stock market, there is more available cash for private lending. Interest rates charged by hard lenders are also falling lower as competition for private capital increases.
There are some negative effects that could be severe depending upon your situation.
Shortage of Building Materials
As discussed above, the shortage of building materials will result in fewer new homes coming on to the market. This is positive for the resale market.
However, if you have just purchased a home that you plan on renovating and flipping, you may either experience delays in obtaining the building materials you need to complete the renovations or you might see higher prices. Both of these possibilities increase your costs and reduce your profits.
Shortage of Labor
Should infection rates increase, many subcontractors may become ill or choose to remain at home until the danger has passed. Either way, there could be delays in completing your renovation project.
Reduced Buyer Demand
Even though overall demand remains robust, many buyers may choose to postpone buying a home until the virus threat has passed. This may result in a longer time on the market.
If you own vacation rental property, there is a high probability that your occupancy rate could be severely affected in the short term. Many travelers are canceling or postponing vacation plans. Stock prices of airlines, hotel chains, and cruise lines have already seen a major correction in anticipation of reduced travelers.
The Bottom Line
It is highly likely that the coronavirus will run its course over the next few months. There is a probability that the death rate may increase somewhat compared to a normal flu season. As such, any advantages that exist in the current climate of hysteria are only temporary.
If you are in a position to take advantage of the current market conditions, do so in the near future. Conditions are likely to worsen in the short term so any advantages created by the coronavirus may improve. As soon as the daily rate of new cases begins to decline and the daily death rate subsequently declines, the market will return to somewhat normal conditions.
The good news is that any negative consequences will also be short-lived. If you have managed your risk appropriately, you should be in a good position to weather the storm. If you have not already done so, read my post Managing Risk.