Buyers and Realtors: There is a lot of talk about an absolute housing crisis do to COVID-19.
We may not totally agree with that stance.
Does a recession equal a housing crisis?
If you started the year thinking about selling your house or buying a new home, COVID-19 likely caught you by storm. And now, you can’t help but wonder: is the housing market going to crash because of COVID-19?
It isn’t surprising that we are getting this question a lot. It’s a valid question. It’s on people’s minds. A lot of people have a lot riding on the housing market, and they trying to understand what is going to happen with the real estate market after the coronavirus. This is leading to catastrophic predictions and talks of an absolute housing crisis in 2020 due to COVID-19.
We do not agree with that stance. And we’ll tell you why.
Reason 1: Recession does not equal housing crisis
History repeats itself. It’s important to look back at previous recessions, and see what happened with the housing marketing.
When you look at the five most recent recessions, like we do in the video above, you will see that, in three of them, the result was house prices going up. So history is a great indicator that this is just as likely to happen again.
Reason 2: Availability is not just about the number of houses on the market right now
Then, we need to consider availability in the market. Does the current housing inventory support the demand?
A healthy market has several months of inventory available for buyers at all times. When you have too much or too little inventory, that creates a problem. If you do a little research, raw numbers might seem to point to a shortage.
But raw numbers don’t always tell the whole story. You need to look at the context.
We are in an unprecedented situation, where people are asked to stay at home and keep social distancing. So state agents have not been able to operate properly. Most people might be reluctant to host an open house or visit a stranger’s home right now. So a lot of people who were planning on putting their house on their market might be holding fire and waiting for the right moment to put their house on the market.
You also might want to look at local conditions – for instance, in the video above, we also consider that Colorado Springs is a military town. What does that mean when it comes to the current situation and the housing market?
Reason 3: The world of lending has become smarter
Next, it’s important to remember that most people do not have all the money they need to buy a house sitting in a savings account, just waiting for them to find their dream home. Most people need to apply for mortgages and depend on lending. They depend on banks. So how strong are the banks? Can the banks offer loans?
The lending landscape has changed since the last housing crisis. It has become increasingly harder to qualify for loans. But, that’s not bad news. People need to properly qualify to get a loan, so they have real equity in their houses, and much better credit scores. This means they also more likely to get better loans.
Reason 4: Low-interest rates
So banks can still offer loans. But what are the interest rates going to look like?
Traditionally, when the national debt is up, interest rates go down. It has been predicted that interest rates will stay low for the next 2-3 years. If rates stay low, then houses are even more appealing.
So, when you look at the bigger picture, you will see that, historically, recession doesn’t always mean that the housing market will crash. What might look like a shortage in availability is likely temporary and due to the current COVID-19 restrictions. Plus, lending is smarter than ever and low interests can make both loans and invest in housing more attractive.
So, the bottom line is: there is no indication that the housing market will suffer in 2020 due to COVID-19. Once restrictions are lifted, if you find a good deal on a house, go for it. You will be glad you did.