Is COVID Still Impacting Real Estate Markets?

A year after the pandemic began, empty shopping malls and office buildings were a sign that the novel coronavirus severely affected how we live. But more specifically, the drop-in home sales in metropolitan areas signaled that the virus didn’t spare the real estate market either.

In March 2020, governments and healthcare organizations declared it a global pandemic, which resulted in lockdowns and stay-at-home orders. The government decided to shut down markets and impose lockdowns in order to prevent the healthcare systems from collapsing. However, that has had quite some negative effects on the real estate market. 

But as a result, many households have turned into substitutes for schools and/or offices, causing homeowners to rethink their housing needs. Understanding the future of real estate could never be more stressed.

The sudden changes

Since the outbreak of the virus and consequent lockdowns, the reality of real estate markets has changed significantly. Real estate investments have been yielding above other traditional industries for several years in the past.

However, I’ve observed that this is no longer the case. Real estate owners are facing real challenges regarding the numbers. 

Service providers are finding it hard to ensure health safety for their employees as well as customers. Similarly, getting permits for construction has been a challenging task for the developers. It results in delays and stoppages, which causes return rates to shrink to a great extent. 

The number of tenants who can make their lease payments is also a big confusion for owners. After all, the pandemic led to a major unemployment crisis as countless people lost their jobs and had to file for unemployment benefits.

To make matters worse, property owners are dealing with quite a low amount of operating income. This seriously affected their performance during the pandemic. 

Major changes- What exactly happened and the reasons behind

If you remember, the real estate industry faced its biggest financial crisis in the year 2007. Nevertheless, it made a huge comeback and was doing very well in the past years. This is the reason why I am always investing in real estate regardless of the trends.

But, due to the covid-19 pandemic, I’ve seen the rate of home sales drop drastically this year in the months of April and May. Ever since the 2007 financial crisis ended, this is the lowest they have ever dropped to. 

And if I compare last year’s listings to this year’s with you, April has seen a major decrease: specifically, a drop of 40 percent. This, along with the low inventory, the number of supplies of houses has also dropped very low. Redfin tells us that there is a 17% decrease in the inventory for homes for sale in the same month compared to last year. 

Moreover, housing demand measures like online searches were also down during the month of April. And typically, a decline in the demand for houses leads to low prices as well. This could have helped the real estate market bounce back because more people would buy homes.

But that was not the case this time around. In fact, a low supply along with unfavorable mortgage rates did not allow that to happen, and prices remained steady in spring. 

Conclusion

The real estate market is facing its second major crisis after the financial crisis of 2007. While it faced the brunt of the pandemic’s effects last year, it’s evident that the real estate market won’t be recovering any time soon.

It will definitely take some time before things start to fall back into place or the government decides to step in with effective measures to boost the market. The activity of real estate markets also largely depends on local factors, meaning some cities experienced greater difficulties than others.

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