The novel coronavirus outbreak will likely bring the U.S. housing market to a halt, according to one economist.
With consumers staying at home to slow the spread of COVID-19, open houses have been canceled, and potential buyers will likely decide to put off their home purchase, a large financial commitment as the U.S. spins into a potential recession.
“We’re gonna have a shutdown in the housing market because people aren’t out there seeing the houses, and also because generally economic activity is contracting in almost every sector of the economy,” said Tendai Kapfidze, chief economist at LendingTree.
Major brokerages have canceled open houses over this past week, while foot traffic at remaining open houses have slowed, according to most recent data. In New York City, there were 28% fewer open houses the weekend of March 15, compared to the weekend of March 8, and that number is expected to be even lower for the weekend of March 22.
“People basically are not gonna go and see houses… You don’t want to be out there mixing it up with people you don’t know, for one. And two, more importantly, the people who have homes to sell, they don’t want people walking through their houses touching everything,” said Kapfidze.
Additionally, many Americans are fearful about what the economy will mean for their job security and financial stability. The uncertainty will likely cause buyers to pause their home search, even with record-low mortgage rates, according to Kapfidze.
“I think we’re guaranteed to have a recession at this point,” he said.
A need for nationwide homeowner relief
In the meantime, said Kapfidze, the government should extend lines of credit to lenders, so they can, in turn, grant relief to homeowners unable to make mortgage payments. As of March 23, the U.S. government has granted a moratorium on federally-backed mortgages, and banks such as Bank of America, Capital One, JPMorgan Chase, Goldman Sachs, TD Bank, Wells Fargo and others are offering mortgage payment relief — but currently there is not a total national pause on mortgage payments.
“For a lot of people, their housing costs are the highest cost that they face each month… by putting this moratorium on mortgages, you help out a lot of people who are having interruptions in their stream of income… And the way that would work is to protect the financial markets, you still want those payments to flow to investors,” said Kapfidze.
Despite a pause in the housing market, homes and other real estate assets will likely retain their value compared to stocks and other invisible assets, he said, adding that the value of illiquid assets is safer than those of liquid assets.
“Home prices I think are just kinda gonna get frozen into place. And then once the public health crisis is over, the housing market can kind of restart,” said Kapfidze.
Sarah Paynter is a reporter at Yahoo Finance. Follow her on Twitter @sarahapaynter
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