How COVID-19 is Impacting Housing Prices and Home Equity

Like almost everything else lately, Covid-19 has rocked the housing market and cast a shadow of uncertainty on the future of home prices.  The following is a short summary of how pricing changes have impacted both buyers and sellers in this COVID-19 economy.

1.     The Impact of Covid-19 on Buyers

By July 2020, interest rates on 30-year fixed-rate mortgages were fluctuating at or below 3 percent.  Though rates have gone up slightly, they still remain around 3 percent.  These record-low rates incentivized many prospective buyers into action, especially millennials and Gen Xers who for the first time found home ownership within reach.

Unfortunately, the ability to purchase was not met with a corresponding supply of homes. The health concerns attributed to the pandemic, along with rules and orders to shelter-in-place, meant that many older, prospective sellers deferred their plans to sell. Without any urgency to sell, many took a wait-and-see approach for how things would play out.

The result? An inventory shortage of homes. While this was good for property owners, because high demand and low supply pushed housing prices up, it also meant that many prospective buyers were unable to take advantage of favorable lending rates.

If you are a buyer, it may be enticing to buy a home at current mortgage rates. But be careful, especially if your ongoing employment status is questionable. Your best strategy is to wait for everything to stabilize before taking on so much debt – even at a favorable rate.

2.     The Impact of Covid-19 on Sellers

Data from the CoreLogic Homeowner Equity Report showed that the annual home appreciation rate rose by 6.5%, representing a cumulative gain of $590 billion for homeowners with mortgages. For the moment, that means fewer homes in negative equity.  Meaning, there are less borrowers on the market who owe more on their homes than the homes themselves are worth.

But that good news is not expected to last. According to CoreLogic Chief Economist Frank Nothaft, “The pandemic recession will likely lead to price declines in many areas during the next year and weaken home equity gains.” A forecast by Haus shows home prices dropping between 0.5 and 2.5 percent from October 2020 to July 2021.

Why is that?

Well, many of those who took advantage of low rates may have bitten off more than they could chew. The federal policies enacted since March to enhance unemployment benefits and prevent foreclosures are coming to an end, meaning that many who bought homes and found themselves in subsequent unemployment may now face foreclosure as payments come due. As Bloomberg reported, “Regret is already in the air,” as many who bought houses after March 2020 are already regretting taking out a mortgage. If banks end up foreclosing on millions of homes, the sudden supply of foreclosed property will cause decreases in prices.

If you are a seller, keep your eyes on home prices around you.  As discussed, prices will likely decline moving into 2021. So if you can find a buyer, now may be the time to sell.  In fact, many realtors suggest that sellers should act before property values drop.

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