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A second wave of outbreak & the housing market

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What will happen to the housing market if we have a second wave of outbreak? Quite a few states are seeing an uptick in COVID-19 cases right now, so this is an important question to ask. This isn’t about politics or fear, but having conversation.

From V to W? The market has seen a “V” shape so far where we had a decline when the pandemic began and then we rebounded. Today I interview economist Ralph McLaughlin to talk about his concept of a Flying W. It sort of takes the “V” that we’ve already seen and talks about why we might see another “V”.

Market update: Here’s my latest market update where I unpack glowing stats from this past week and some things to keep in mind if we do see another outbreak. Watch below (or here).

Ryan: What is The Flying W?
 
Ralph: The “Flying W” is generally the shape of the housing market recovery that we’re forecasting at Haus, which essentially is a wavy one. You can think of it as really two “Vs” next to each other, where the initial drop in activity due to the pandemic is sharp and severe, followed by a rebound to near pre-pandemic levels, and then the process repeats itself until we’ve recovered sometime next year. We’re thinking the process will repeat itself for a second time for three reasons. First, we think the initial rebound is simply due to pent-up demand for home buying that would have otherwise occurred in March, April, and May but will simply be pushed to June, July, and August. But after that, we’re not expecting new demand to replace it at comparable levels, which will lead to another drop in activity. Second, and I think we’re seeing this already, is that the virus will make a comeback, which will lead to less demand for homebuying in the fall. Third, there’s a possibility that we’ll see a broader impact on housing demand (including rentals) if the federal unemployment insurance bonus runs out at the end of July.
 
Ryan: What sort of stats would you recommend following to know if a “W” shape was beginning to happen?
 
Ralph: The important thing to note here is that some indicators are likely to follow a W, while others might follow an additional path. We’re expecting employment growth, home sales, price growth, and housing starts to follow a “W’ pattern, whereas we’re forecasting refinance activity to be more waterfall shaped. Other indicators are likely to buck the trend. For example, if renters are hit harder than homeowners, then we could actually see an uptick in the homeownership rate.
 
 
Ryan: Do you have any advice for buyers and sellers as they consider a possible second wave of coronavirus?
 
Ralph: Sellers shouldn’t be too worried at this point. It appears in the aggregate, sellers freaked out more than buyers during the pandemic. We saw large decreases in inventory across the country. And though demand certainly fell, it didn’t fall as far as supply. So the result has been a surprisingly robust market in many markets across the country. I recently sold my home in Virginia and was pleasantly surprised to have multiple offers, so buyers shouldn’t be expecting to get massive, if any, discounts like they could 10 years ago.
 
Ryan: Any tips for the real estate community?
 
Ralph: Utilize technology. We’ve come a very long way over the past decade in how people search for, tour, finance, and close on homes. Those who can utilize technology will have a competitive advantage during a downturn and thus will be more resilient. Buyers are becoming savvier with narrowing down their search list using online search portals, agents are becoming more savvy with how they use tools to virtually show homes and hold open houses, lenders are findings ways to streamline document sharing and signing, and title companies utilize platforms that make closing more transparent and efficient. The more the real estate community can utilize these technologies, the more resilient it will be.
 
Ryan: Thanks Ralph. I appreciate your time today.
 

Closing Thoughts: I’m really careful about discussing the future, but today I wanted to talk with Ralph because I think we need to think through what might happen to the market with a second outbreak and plan ahead. In my mind the two big issues that could influence the market include people’s perception of safety and governmental regulations. If we go on lockdown again, for instance, that could be a huge factor in slowing down the real estate market. Would it be exactly the same thing we saw in late March? Nobody knows. For now though it’s fascinating to consider whether our “V” shape could turn into a “W”. Let’s keep watching…

Manage your mental health: One last note. I realize this is a stressful time for many (including myself), so my hope is that you would have a deep sense of peace no matter what happens. And if you’re getting triggered by so much virus talk, maybe tune out of social media. My sense is having peace is not going to happen by accident so we all need to figure out how to cultivate that. Know what I’m saying?

Thanks for being here.

Questions: How do you think a second outbreak might affect the housing market? Do you think we’re going to go on lockdown again? I’d love to hear your take.

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Reader Interactions

Comments

  1. Hi Ryan…. always enjoy receiving your blog. My biggest concern is that a 2nd wave or shut down could really impact jobs and the economy to the point that many homeowners will start facing foreclosures and that will in turn flood the market with homes inventory will rise and there may be a limited pool of buyers. Hopefully the 2nd wave isn’t sustained through the summer. I remain optimistic that we may just see a minor slow down in the Greater Sac Area.
    John Ecklein Realty ONE Group Complete

    Reply

    • Thanks John. I share your concern. How much of a beating can businesses and residents take? It’s going to be interesting to see what happens here in terms of a shutdown. I know as of 6pm last night bars in Sacramento County are no longer open. What a time we’re living in right now…

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  2. Coastal So Cal prices have not been adversely affected. Currently demand far outweighs supply. I see the virus as more like a tsunami than a first and second wave. California implemented measures to slow the spread, which have been successful in accomplishing that goal. The slow moving tsunami has never let up, it just keeps coming. LA just closed down bars and the beaches will be off limits for the holiday weekend. Phase two could be pulled back soon in OC. Some have let down their guard due to restlessness and good weather. We are prepared to ride this tsunami for quite a while. Stay healthy and safe Ryan!

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    • Thanks Mark. Yeah, it’s been unsettling to see rising numbers lately and I think your tsunami example feels about right. For me I’m most interested in what happens with listings coming to the market, the number of pendings, and then the number of sales. Prices in my area have been more or less stable too, but I think we’ll see the market more in other metrics. You’re right about supply though. It’s been anemic. In the Sacramento Region we’ve essentially had about 3,000 fewer listings this year compared to last year since the pandemic began.

      Reply

    • Thank you so much Zoritha. This is a big conversation. It feels so polarizing to talk about this right now, but this is really key to watch. Lots of moving parts right now for the real estate market and economy.

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  6. Great job, Ryan – as always! Thank you for keeping us up to date. I may do a video once a week and send out to my clients about your market update and I’ll promote your blog as well. I hope that’s okay with you. Thanks again!

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    • Thank you so much Rico. If you do videos, let me know. I always like to see what people are doing. You are welcome of course to use any of my visuals as long as you give credit. This is why the visuals exist. You can save them from my blog, Facebook, Twitter, or LinkedIn. I’m taking about two weeks off coming soon, so I won’t have a video update out until mid-July or so myself.

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  7. Great interview Ryan. It is fun to speculate about the future and then get it wrong. I’m usually wrong with my predictions. I thought the housing market would nearly halt during the first wave and it didn’t. I’m concerned about the second because it would likely hit during the already slow time of the year, so I think it could be more painful if you rely on real estate sales to make a living (a big part of my business needs real estate sales). I will find my peace and wait.

    Reply

    • Thanks Gary. Yeah, this could go way differently than a “W” or any shape for that matter. I’m very hesitant about discussing the future because it’s too easy to be wrong. But the reason why I wanted to interview Ralph here is because very few people seem to be talking about a dip due to a second wave. I appreciate the consideration given in that regard. Could the market unfold different than a “W”? Of course. I’m just aware of possibilities and wisdom says to plan ahead.

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  8. Hi Ryan,

    Once Covid-19 became political fodder it obviated the need for a 2nd wave. The first will be with us for a long, long time.

    Thanks for your blog.

    Reply

  9. Scholl: Brilliant; Kristensen, kudos for mentioning ‘slow market’, seasonality is v important.
    In SF I notice a separation from higher priced vs mid/lower priced property. The larger homes/wealthier owners/buyers seem rather unaffected by the Covid in that the supply/demand dynamics have resulted in limited price level changes. At the very highest price levels, I don’t know.
    Covid? the mutations seem to lead to higher ‘cases’, virulence I don’t know. I anticipated huge increase in ‘cases’, which has happened, but expected much greater drop in death/case ratio (the ratio has dropped from about 40% initially to 5% now). The arithmetic of Ro factors is fascinating, my guess is that at this moment 40-50% of pop shows ‘signs’, pretty wild and if accurate is good news.

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    • Thanks for your take Merv. One thing I’ve thought of with a “W” is the market could easily look like a “WV” just because of a normal fall. In my mind that would only say we had “W” market if metrics took a definitive dip like we saw in mid-March for two to three weeks. We’ll see. I hope this is a non-factor. It’s good to consider though and think through ideas about the future.

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  10. I think we have learned a lot from the first wave of the virus and I hope we can go into any future waves with better knowledge about how to handle things. I hope we don’t have to shut down the economy again as it will have further devastating effects. Unfortunately, I think that COVID-19 is here to stay so we must learn how to manage it. I’m 100% with you about being intentional about controlling our social media consumption.

    Reply

  11. I am sending this out, just in case A) some of you that get Ryan’s blog don’t know about him being in the hospital, B) I am hoping that this comment will reach some of you that may not be in the appraisal sphere.
    Don’t know the specifics but Ryan is in the hospital and there is a go fund me page set up. Here is the link.

    https://gf.me/u/yiqv25

    If you can help him and his family please donate, I know this is a weird and tough time but if you can help Ryan and his family out, that would be a good way to “pay it forward”. Thank you.

    Reply

    • Hey Brad. I’m just getting around to responding to comments. I know you posted this 5 weeks ago. And I appreciate it too. We are so blown away at the GoFundMe. I appreciate your support. I hope to be back to work in a couple weeks. I was planning on next Tuesday, but I’ve been really tired these past few days, so we’ll see. Blessings to you. a

      Reply

  12. Pandemic is a word we’re all ready to stop hearing! Hopefully we can get back to normal lives soon!

    Reply

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