Will Coronavirus Burst Another Housing Bubble?

Point of Interest

Unlike the Great Recession, experts say the COVID-19 pandemic will put the housing market on hold — but not in long-term jeopardy.

Spring is historically the busiest time of year for the real estate industry. This spring, however, is a different story. Despite historically low mortgage rates and refinance rates, the coronavirus pandemic has started to slow down the real estate industry. 

On March 16 and 17, the National Association of Realtors conducted a flash survey on the impact of COVID-19 on the housing market. Gay Cororaton, director of housing and commercial research for the National Association of Realtors, said these were some of the survey’s key takeaways:

  • About 48% of realtors said that they’re seeing a decrease in buyer interest
  • Roughly 28% of realtors said there are fewer homes in the market
  • Nearly 23% of realtors said their sellers are pulling listings off the market

While we will likely see house prices plummet during the COVID-19 outbreak, Cororaton says. But we won’t see the housing market collapse like it did during the 2008 financial crisis.

A V-shaped recovery 

“This is a temporary COVID-19-driven downturn. While you will see a big increase in unemployment, the transmission to the housing market will be very much muted,” Cororaton said. “The underlying demand is still there primarily because you have a millennial population that’s just entering the housing market. When this ends, there will be a rebound.”

Zillow Economist Jeff Tucker shares similar insight on the coronavirus recession and how it’s impacting real estate in the U.S.

“Showings have dropped, some sales have fallen through, and web traffic on Zillow listings has gone down somewhat,” Tucker said. “It’s still too early to quantify how many transactions are just being delayed for a short time, as opposed to being put off indefinitely.”

The impact of social distancing on real estate

Social distancing practices are certainly changing sellers’ behaviors, particularly in relation to real estate transactions. As a result, sellers are quickly turning to virtual home tours. Last week, the number of 3D home tours created on Zillow nearly tripled compared to an average week in February, according to Tucker. 

The sharp slowdown in the economy — due in part to social distancing — is also impacting buyers.

“Some of the 3.3 million Americans who filed initial claims for unemployment benefits last week were likely planning to buy a home before the pandemic began, and now will be putting it off,” Tucker said.

But what about the people who are still employed? Tucker said the millions of people who still have their jobs likely feel less confident about their job security or their income in the coming months.

“We also know that, for many people, home purchases are determined by things like a job move or growing family, which could spur those buyers to press forward despite economic uncertainty,” Tucker said.

What’s happening to mortgage interest rates?

Although the mortgage market has experienced volatility over the last few weeks due to COVID-19, interest rates remain relatively low.

Federal Reserve recently initiated a second emergency rate cut, bringing the federal funds rate to between 0% and 0.25%. The rate cut is intended to spur the economy by making it cheaper for people to borrow money. 

For existing homeowners, the low mortgage rates of the last few weeks have given many an opportunity to refinance. The Mortgage Bankers Association reported that refinance applications jumped as much as 79% in a single week in early March. 

If you were already looking to buy a house, Cororaton suggests buying now while interest rates are historically low. According to NAR’s data, the average interest rate for 30-year fixed-rate mortgages was 3.62% in January and went down to 3.45% in February. For context, the same rate was 4.27% in March 2019 and 6.5% in 2006. 

Low mortgage rates certainly can help a buyer save on their monthly payments, but Tucker doesn’t recommend making a decision based solely on that. 

“Buyers in much of the country are now facing logistical challenges to actually completing a purchase, due to stay-at-home orders and social distancing guidelines,” Tucker said. “Those restrictions have evolved so quickly that it is difficult to confidently predict what will be permitted even next week, much less over the course of the several weeks a typical buyer needs to complete a home purchase.”

He says many buyers will likely continue to take a wait-and-see approach, given all the uncertainty about how the public health and economic effects of the pandemic will play out.

How quickly will the real estate market rebound?

While it’s hard to predict what’s to come without knowing how long the pandemic will last and what the ultimate effect will be on the economy, there’s speculation across the industry that the COVID-19 pandemic will simply put the housing market on hold — not in jeopardy.

Tucker said Zillow’s research team studied past pandemics, including the SARS outbreak in 2003, and found a sharp, temporary slowdown in home sales, but minimal long-term impact on home prices.

“Once the outbreaks ended, things snapped back to normal levels fairly quickly. There are many differences between now and then, though, so at this point it’s hard to say what will happen long-term,” Tucker said.

Alex Gailey

Financial Reporter

Alex Gailey is a financial reporter at Interest.com who specializes in banking, deposits, mortgages and personal finance. Her writing has been featured in Yahoo Finance, MSN, Atlanta Business Journal, Charlotte Business Journal, The Boston Globe, The Simple Dollar and elsewhere.