Coronavirus Impact On US Real Estate Investment

Coronavirus Impact Real Estate

What is the Coronavirus?

As explained by the Word Health Organization (WHO), The term “coronavirus” refers to a large family of viruses that are shown to cause respiratory infections ranging in severity from the common cold to Severe Acute Respiratory Syndrome (SARS). Beginning in December 2019, a hereto unknown virus, now dubbed COVID-19, began to spread in Wuhan, China. Since then, over 3,000 deaths have been reported worldwide as the virus expands outside China. As regions such as Northern Italy, Iran, and South Korea struggle to contain the virus, worries grow as to how the United States healthcare system and economy will be affected.

What could be the short-term effect of the Coronavirus on the US Housing Market?

As explained by Realtor.com, buyers from China have already begun to spend 56% less on US homes thanks to the Chinese government’s regulations on how much money can leave China, the United States stricter immigration rules, and as trade negotiations become increasingly rocky. Attempts to contain the spread of COVID-19 only exacerbate the situation given a temporary ban on all foreigners who’ve recently traveled to China and the cancelation of many flights between the two nations. Many potential Chinese buyers simply can’t come to the US, adversely affecting real estate sales in the short term.

Given the uncertainty caused by COVID-19, many may decide to keep their money in US Treasury Bonds, which are historically stable. When this happens, mortgage interest rates fall. This is on top of the emergency interest rate cut issued by the Federal Reserve on Tuesday, March 3rd, reducing the rate to 1.0 – 1.25%.

Driven by fears of the Coronavirus, the US stock market experienced its sharpest drop since the 2008 financial crisis in late February. The Federal Reserve voted to lower interest in an attempt to boost consumer confidence. The vote itself was uncommon in nature; it was the first time since 2008 that such a step was taken between scheduled policy meetings. The result may encourage more buyers to enter the US real estate market, but it may also prompt sellers to boost their prices.

What could be the long term effects of the Coronavirus on US Housing Markets?

The effects of COVID-19 are already being felt. The SNL U.S. REIT Equity index, a measure of real estate stocks, dipped about 12.3% the last week of February, according to S&P. Hotel REIT prices, meanwhile, fell 18.4% that week as well. It’s predicted that retail, malls, in particular, will suffer as consumers begin to avoid public spaces.

The luxury real estate market, which is traditionally defined as properties valued at $1 million dollars or more, is at greater risk of experiencing decline given the preponderance of Chinese investors. As people begin to avoid networking and mingling, sales may dip. Although, well-to-do foreign buyers have surrogates who can act on their behalf. There is also the impact of anti-Asian racism to take into consideration.

As reported by The Wall Street Journal, the Port of Los Angeles, the largest U.S. gateway for Chinese imports by route of sea, is already projecting a 25% drop in container volume between Feb 11th and April 1st, mostly from China. Construction may experience delays due to increases in material costs as Chinese manufacturing and shipping slows. Although, for larger developments already in progress, materials are often ordered years in advance. The concerns, then, are more future oriented.

Economists believe a pandemic would send the United States into a recession. A recession is only a risk, however, if the effects of COVID-19 extend beyond manufacturing, travel, and other sectors that are more likely to be impacted by the virus. When companies with no connection to the virus begin to experience strife, the risk of recession is far greater. Given the interconnectedness of economies, the full adverse effects of Coronavirus have yet to be fully felt and the extent of the expected damages are hard to predict since no single CEO knows the entirety of their company’s supply chain.

As developments unfurl, it’s important to take reasonable precautionary measures, more so for the benefit of those who are likely to catch the virus, such as those who are immunocompromised or those who suffer from heart conditions, than for one’s self. Wash your hands and face regularly, wipe down commonly touched surfaces such as door knobs and counters with disinfectant, and keep abreast of recent developments to avoid panic.

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