Analyzing the U.S. Housing Market in the Early Days of COVID-19
Jeff Andrews writes on the housing market context into which the pandemic has emerged:
Historically low inventory and rock-bottom mortgage rates would normally set the stage for a highly competitive homebuying season. While recessions normally have only a minor effect on the housing market, the coronavirus is making life and markets anything but normal.
Citing a literature review by Zillow published earlier in March, the history of past pandemics suggest that the pandemic will have the effect of freezing the housing market. To put it bluntly: prices don’t drop when no one is buying houses.
Andrews also notes that the moratorium on foreclosures, announced by President Trump last week for mortgages backed by Freddie Mac, Fannie Mae, and the Federal Housing Administration (FHA), will help in preventing the bottom from falling out on the real estate market like it did in 2008.
Among the other concerns mentioned by Andrews in the article are the supply chains for the housing construction industry, which could be interrupted by the coronavirus and thus delay a recovery in the sector. A decline in housing production would, according to Andrews, exacerbate the housing shortages that existed before the coronavirus struck.
Perhaps the one clear takeaway from this article is how different the current situation is from the housing crash of the Great Recession. Andres explains:
It’s hard to forget the recent history, but while the 2008 financial crisis saw both the housing and stock markets drop in tandem, this was an aberration in so many ways; the housing market crash was ultimately the cause of the stock market crash. Typically the housing market isn’t tied to swings in the stock market, because people don’t buy houses purely as an investment. Housing is a basic need, and the decision to buy one is usually prompted by entering a new stage of life.