Coronavirus effects on real estate

Before coronavirus and COVID-19, the U.S. housing market had seemingly rebounded to pre-crisis levels of confidence. However, the spread of the virus has led some people to speculate about the possibility of a real estate crash in 2020.

With that in mind, many people have found themselves asking, “What are coronavirus effects on real estate?”

To that end, Amerinote Xchange has sought to bring you a summation of the facts. We’ve looked at the effects of this virus across different sectors of the real estate market in order to bring you a high-level overview of what to expect. Read on below to learn more.

Foreign investors are investing in high numbers

Amid initial assumptions that the United States lagged behind other countries in terms of the number of reported cases of the virus, foreign investors began looking towards the U.S. real estate market as something of a safety net. So far, this trend shows no sign of slowing down.

In particular, Roofstock, a fintech company which allows investors to buy single-family rental properties entirely online, recently reported a sharp increase of activity from foreign markets. In the last few weeks, the site has seen traffic from Asia jump 500%, as well as a 450% increase in traffic from Germany, a 250% increase from Australia, and a 100% bump from the United Kingdom.

As for the rationale behind these increases, Roofstock CEO Gary Beasley told CNBC that he believes these numbers are a direct result of how coronavirus is affecting real estate.

“I think people look at hard assets, things like real estate [including mortgage notes], which are uncorrelated generally to the stock market,” he said, “and specifically U.S. housing, that tends to perform quite well on a relative basis during times of market volatility.”

Commercial real estate investors are largely looking for safety

The commercial real estate industry, on the other hand, offers a much different assessment of the coronavirus impact on real estate. For their part, most CRE investors are trying to mitigate their risk levels by sticking to those projects which are the safest bets in an economy that’s facing increasing social-distancing measures.

Simon Ziff, president of the real estate advisory firm Ackman Ziff, recently told The Real Deal that lower base interest rates and increased spreads have increased investor appetite for “safe haven assets”.

Namely, he points to industrial, office and multifamily properties, as retail and hospitality properties are more likely to take a hit from potential consumers being told that they need to shelter in place.

Residential buyers and sellers remain seemingly unaffected

One area that’s particularly slow to see the impacts of coronavirus is the residential real estate market. While the unprecedentedly-low interest rates for mortgage loans brought about by state of the market due to the virus have seemingly incentivized existing homeowners to refinance, the impact doesn’t seem to be as strong on today’s buyers and sellers.

A flash survey conducted by the National Association of REALTORS (NAR) on March 9-10, 2020, found that 78% of the agents surveyed believed that there had been no change in buyers’ interest levels due to the virus. Similarly, 87% of those surveyed said that the virus has not impacted the number of homes on the market.

The biggest shift that the survey cited was that one in four home sellers is changing how their home is viewed during the outbreak, including canceling open houses and requiring potential buyers to use hand sanitizer before entering their home.

Most mortgage REITs are following a conservative strategy

On the investing end of things, the virus’s impact is certainly being felt. Put simply, in this case, lower rates mean slimmer profit margins and that, combined with market uncertainty, is having a huge impact on their value. In light of that, many real estate investment trusts (REITs) are looking for ways to stay profitable.

The Motley Fool reports that market uncertainty has made the majority of mortgage REITs invest in agency mortgages. These mortgages are insured by government agencies like Fannie Mae and Freddie Mac in the event that the borrowers default, all but guaranteeing some profit for investors.

However, the current low interest rates on these loans mean that they are barely seeing a profit at all.

However, some REITs are taking a different approach in the COVID-19 real estate era. In that same article, The Motley Fool pointed out that MFA Financial (NYSE: MFA) is shaking up its holdings by investing in whole loans.

These loans are high-quality loans, designed for professional real estate investors and self-employed borrowers who can’t report W-2 income.

However, since they are non-qualified, they often carry higher interest rates to compensate for the credit risk, which generates a profit.

Overall, the full impact of the virus is uncertain

The one thing that we can gather from looking into all of these different sectors of the real estate market is that the full impact of coronavirus and COVID-19 on this industry is uncertain, mostly due to the fact that the full impact of the virus itself is still uncertain.

As a recent report by California-based real estate firm Marcus & Millichap points out, historically, “[p]ast pandemic events such as the swine flu, the bird flu, and SARS also generated short-term market volatility that stabilized within 90-180 days on average” rather than leading to a full housing market crash.

That said, we have no way of knowing how long this virus is going to last.

We also have no way of knowing how the virus will affect the flow of daily life. As more social-distancing initiatives are put into place, daily activities that stimulate the housing market – such as the ability to go to work and earn a paycheck – will continue to be put on hold.

If people are unable to earn enough money to make their mortgage payments or to invest in the housing market at low interest rates, an American real estate crash may not be that far-fetched of an idea.

However, only time will tell the full story of what are coronavirus effects on the real estate industry.

Cited article sources

1. Marketwatch. (March 16, 2020). “The Fed just cut rates to 0% – here’s what that means for mortgage rates.” https://www.marketwatch.com/story/heres-what-the-feds-surprise-interest-rate-cut-means-for-mortgage-rates-2020-03-03
2. TheRealDeal. (March 13, 2020). ” Coronavirus chaos driving lenders to safer projects amid low interest rates.” https://therealdeal.com/2020/03/13/coronavirus-chaos-driving-lenders-to-safer-projects-amid-low-interest-rates/
3. National Association of Realtors. “NAR Flash Survey: Economic Pulse.” https://www.nar.realtor/research-and-statistics/research-reports/nar-flash-survey-economic-pulse
4. CNBC. (March 5, 2020). “Foreign investors are piling into this US real estate play as a coronavirus safe haven.” https://www.cnbc.com/2020/03/05/foreign-investors-are-piling-into-this-coronavirus-safe-haven.html