And when the real estate market gets nervous, everything slows down. A lot.
What’s happening now? The Department of Housing and Urban Development announced this month that the Federal Housing Administration has been authorized to implement an immediate foreclosure and eviction moratorium for single-family homeowners with FHA-insured mortgages for the next 60 days. The hope is that the world will be a little less chaotic, and if not, then HUD has 60 days to make some new rules.
Settlement agents, closing agents and title companies are all working hard to get the closings/settlements that were already underway completed. They are limiting the number of people who are at closing to comply with new guidelines from the federal government and the World Health Organization.
Normally, buyers, sellers, their real estate agents and, in states where attorneys are used in residential or commercial real estate closings, real estate attorneys meet at closing; so, the closing table can get crowded. New guidelines indicate that sellers and their agents and attorneys should take a pass and sign closing documents by electronic signature. The settlement agent and other parties will probably (hopefully!) wipe down surfaces, limit all contact between people, use disposable pens and even limit the paperwork exchange.
What about would-be sellers? Agents are, for now, taking listings, but open houses should be off the table. Sellers don’t want strangers trekking through their homes, touching surfaces and possibly spreading germs. Agents are trying to reassure sellers that they will only bring through qualified buyers, instructing them not to touch anything, and escorting them the entire time they are in the home.
Buyers are plenty nervous, too. Those that left assets in what was, until a few short weeks ago, a high-flying stock market, may wind up with a lot less cash to use to buy homes. While interest rates are now at rock-bottom lows, that may not make up the difference. Sales will slow. Prices will come down, as the economy quickly flips from a strong seller’s market to a buyer’s market.
How much will the market slow? The National Association of Realtors estimated a 10 percent reduction in sales for 2020. We think the true number could be a lot higher, depending on how fast unemployment rises and how quickly people find new jobs (if indeed they do).
We also see technology taking an even bigger role. We expect that electronic signing of documents will become more widespread. Paper copies may become a thing of the past, as copies of loan documents are now legally required to be sent to the buyer by electronic means in advance of the closing. We expect more closings will be done remotely, especially where documents are signed in advance, electronically in some cases.
For now, it appears that closings and settlements will be bare bones, so don’t expect too many happy faces, but rather hard-working real estate professionals doing the best they can to get a closing completed quickly with as little personal interaction as possible. For now, closings can proceed, but we’ll have to see for how much longer. If the banking system shuts down, closings will likely be suspended.
As interest rates fall, the demand for refinancing seems to be skyrocketing. But this is a volatile market. This month, 30-year fixed-rate mortgages were hovering around 3.25 percent to 3.5 percent. Then, they were at 4 percent, as investors flocked to 10-year Treasurys, and the Federal Reserve announced it would be buying mortgage-backed securities. Demand for bonds won’t help mortgage interest rates or housing affordability.
But, this could flip again.
During the Great Recession 10 years ago, the housing market took huge blows and market values plummeted. Over the last decade, real estate values in many markets recovered and then soared. But not everywhere. And, that was in a good economy (at least over the last few years).
Unfortunately, there are dark clouds on the horizon. With businesses closed, employees will be laid off, those unemployed will have bills to pay and no income to pay those bills. The government payouts won’t be enough to cover everything.
In this downturn, which you should expect to be severe, everyone is getting hurt: big business, small business, families and individuals. We’re in uncharted territory, with some billionaires calling for a complete halt to the global economy for 30 days to reduce the spread of the coronavirus.
No one even knows if something that drastic would work. Can we force everyone to stop and stay at home? Indeed, until Miami shut its beaches, college students were enjoying an extended spring break, cavorting as usual.
If the government sends out billions of dollars to all U.S. citizens, we hope everyone would use the cash to pay their most basic living expenses. As for the real estate market, that money may not do much to help potential buyers if they can't qualify for a mortgage due to a job loss. And, it won't help homeowners who decide they don't want strangers coming to their homes and take their homes off the market.
Unless the coronavirus is controlled, the problems with the global economy will directly affect even the most local of real estate markets. And if the worst comes to pass, you might well see your local real estate market freeze up along with the rest of the economy.
We wait to see what our elected officials in Washington decide to do, and whom they will help.
Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through her website, ThinkGlink.com.