I remember sitting in my office in 2006 in Downtown Tampa watching all the cranes slapping up new condo buildings like there was no tomorrow. It turned out that there really was no tomorrow as soon the market was glutted with housing without enough buyers to fill them. The story was the same all over the country. Housing inventory was through the roof.
Fast forward to the Spring of 2020, the housing market seems to be on the decline. I heavily preach that business cycles are relatively predictable and that history usually repeats itself. I also joke that people ignore business cycles by saying “this time it’s different.” This time, however, I do see some distinct differences in the housing markets in 2020 vs the housing and mortgage markets in the mid-2000s.
March of 2020 threw the markets a curveball that we really haven’t seen in modern times. Never in my 51 years has there been a time where the world’s population hunkered down and simply stayed at home. Businesses have completely shut down and people fear for the future of their jobs. Our small real estate practice on Florida’s West Coast saw numerous contracts cancelled when the Covid 19 virus first started to rear its ugly head.
It’s interesting to note that the month of March of 2020 saw home sales drop 8.5% from the previous month, but sales actually increased by 0.8% year-over-year. So what is the difference? It’s no secret that the Covid 19 outbreak has severely impacted all commerce, not just housing, but housing inventory remains incredibly low. Our real estate business has seen fewer buyers that wish to look at homes, but the buyers that we are seeing are serious about buying. With current quarantines in place across the nation, we’re not seeing as many homes hit the market. Inventory is severely depressed, so that supply and demand balance is still tilting towards the sellers. Home prices actually jumped year-over-year by 8% in March.
As the economy reopens, however, we expect both buyers and sellers to be cautious. We’re not expecting dramatic increases in inventory as sellers remain concerned over moving due to employment concerns. We can also say the same thing about buyers. We do expect activity to be slow with home prices holding steady for the next 90 days.
The real test will come when the government-mandated forebearances come due. The government has mandated that all lenders allow borrowers and renters to delay payments for 90 days. What most consumers don’t realize is that these amounts aren’t skipped, they are simply delayed. If a consumer accepts the forebearance amount for the next three months, they will have to pay all four months with their payment in four months. It will be a shock to most consumers and you’ll see an explosion in delinquency. How this will impact the real estate market is anyone’s guess, but it’s safe to say that the real estate markets will see a dramatic shock to the system towards the end of 2020. It could, however, be a tremendous opportunity for real estate investors, but we’ll have to see how the government responds to the shock.