Will the Real Estate Industry be Affected by the Economic Volatility due to the COVID-19?
Despite all the misconceptions that a lot of people might have, the values of real estate and the performance of the stock market doesn’t have any direct connection. The overall state of our economy is the primary factor that affects these two. Consumers spend their income based on how confident they are with their current income and job. Hence, this spending would include the purchase of real estate properties too.
The market for real estate is significantly impacted by the prices of the treasury bonds, which correspond with mortgage rates. As the demand increases for treasury bonds, the bond prices tend to rise as their yields or the interest paid to the investors start to fall. This event results in lower mortgage rates.
The emerging volatility of the stock market is a result of the uncertainty brought by the coronavirus (COVID-19) disease. This pandemic has impacted the corporate earnings and supply chains of various companies all around the world.
Not only are people experiencing salary cuts, but more and more people are starting to lose their jobs as a result of this occurring pandemic. This has a domino effect on the demand for real estate property, since the disposable income of most people continues to drop.
Recession During COVID-19
A recession is defined as the decline in the overall GDP for two successive cycles. Recession has a negative impact on the economy, which often leads to lower wages, unemployment and lesser opportunities. Reduced wages and income results in renters and home buyers to have less disposable income to spend for their monthly housing expenses, and will eventually lead to lower rents and home prices.
iin the early phase of the crisis, we can expect that the market for the hospitality-related industry such as hotels, Airbnb properties, and the likes will experience an immediate impact. This has brought a lot of burden for real estate investors or owners of hospitality-related businesses.
On the other hand, the impact of COVID-19 to commercial real estate remains to move at a slower pace, and seems to respond later compared with the unstable stock performance. Moreover, according to he forecast made by the Goldman Sachs, the U.S. GDP has already stopped growing and may not recover until the month of October.
Impact of COVID-19 to Investments
You may find yourself in an unprecedented situation with your investments. For instance, you may have some reliable tenants who become unable to pay rent because of the salary cuts or unemployment due to the occurring recession.
People with little to no savings are the ones with the tightest financial situation, as companies limit their working hours or temporarily close in order to comply with the strict government preventive protocols in order to prevent the spread of the contagious disease.
Consequently, more and more establishments are placing eviction moratoriums as this pandemic unfolds. This placed a lot of pressure for the federal government to impose an official moratorium. At present, Santa Monica, Los Angeles, Miami, San Francisco, San Jose, Philadelphia, Austin, California, New York, and Texas have either temporarily held evictions or have placed moratoriums on them.
People who are affected by the lay-offs or salary cuts can avail the mortgage services offered by the FHFA or the Federal Housing Finance Agency. These services include the suspension or reduction of mortgage payments for six months. However, it is important to note that interest will still continue accrue. Some Property Management companies have deferred the rent payments in to two or three months.
Bright Side of the Current Situation
Despite all the adversities brought by the COVID-19 pandemic, there are still some prevalent positives in our current situation. For instance, rates are more likely to stay low for the time being, since the federal government is not doing any moves to undo these efforts yet. If the customer confidence and demand remains high, existing real estate properties are presented with opportunities of new purchases.
According to Jerry Padilla, a lender in New York, “investors are currently refinancing their real estate properties, in order to take advantage of the low rates.” He adds, “most people seem to be in a hurry, but it is important for investors to understand that there may be a delay in the turnaround time, as lenders are experiencing business influxes.
For the time being ACUTRAQ Background Screening has kept their doors open from the start, knowing that the real estate sector needs to keep this strong pillar available to help them make the best choices when selecting prospects.