There is a lot of conflicting information out there about the housing market right now, and the complicating factor for real estate investors is that just about all of it could be true.
On one hand, new construction is doing surprisingly well. On the other, Google Trends data suggests a mass failure to pay rents could trigger another crash in a market that still boasts relatively low homeownership. And, of course, if you ask the National Association of Realtors (NAR) how things are going, they might tell you they’re revising their housing outlook, but they’ll also provide you with a survey telling you their members are feeling just fine about very nearly everything these days.
“About seven in 10 realtors report there has been no change in the number of homes on the market since the outbreak,” NAR reported recently. “Home prices are likely to hold steady [and] the temporary softening of the real estate market will likely be followed by a strong rebound once the economic quarantine is lifted,” NAR chief economist Lawrence Yun added.
Regardless of what agents are reporting that buyers and sellers are feeling, it is indisputable that home showings are down, however. In fact, physical showings have fallen dramatically since mid-March, when many public school systems shut their doors and the government enacted a 14-day social-distancing program in an effort to halt the spread of the virus.
Social Distancing Could Distance Landlords from Cash Flow
Part of social distancing involves working from home and, in most areas of the country, people are being encouraged to stay home from work if they cannot do their jobs remotely. Given that this will directly affect most residents’ ability to pay the cumulative $500 billion or so that gets paid in U.S. rents annually, this could create a huge problem for landlords – particularly in cities and states that have enacted bans on evictions but not yet provided assistance to landlords who may struggle to keep utilities on or maintenance up to par if their incoming revenues are reduced to little or nothing.
“The U.S. housing market has been supported for many years by the confidence that there is a well-funded army of renters, particularly in urban markets, as unemployment trended close to record lows,” wrote CCN.com analyst Francois Aure. “This pillar of the United States economy may be eroding,” he warned.
Aure cited Google trends data indicating “can’t pay rent” has doubled in search term volume since the coronavirus outbreak. He also noted that only about two-fifths of mid-sized apartment properties are owned by individuals, leaving the rest to institutional investors and investment funds that “do not wait around to see if their tenants can bounce back.”
“Real estate funds are aggressive and fast-moving. If they don’t think the returns are there, they will dump their holdings en masse and move on,” Aure said. He concluded, “Real estate investors will be hoping that all these google searches are precautionary, or they could have a big problem on their hands.”
Do you think the housing market is heading for a crash? What could stop it?
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