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Sizing up the coronavirus’s impact on home sales

National Associaton of Realtors’ chief economist says the pandemic’s duration will make a big difference in how the real estate industry rebounds.
National Associaton of Realtors’ chief economist says the pandemic’s duration will make a big difference in how the real estate industry rebounds. (Andrew Harrer/Bloomberg)

Just recently, there were very encouraging signs in the real estate market — existing-home sales, new-home sales and building permits rose significantly — portending a strong spring buying season. And then the coronavirus hit, sending the market into a skid.

We asked Lawrence Yun, chief economist at the National Association of Realtors, for tips on how prospective buyers and sellers can navigate this wild market. His responses, via email, were edited for clarity and length:

Q: A lot of people are comparing this time to the early days of the housing market crash in 2008. Do you agree with that?

A: Too early to say, but it will certainly be different. Back then, subprime lending, along with massive overproduction by home builders, was simply not sustainable and bound to fail. This time around, the fundamentals were solid with no subprime lending and no overproduction. So the virus impact could be just delayed transactions once the “all clear” sign is given. Still, the stock market correction and the first phase of job cuts in retail service and the travel industry will pause some buyers. Those with secure jobs (government workers, health care, education, truck drivers) could try to take advantage of the super low mortgage rates at a time when there is less buyer competition in the market.

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Q: What are your expectations in the D.C. area for the spring buying season and beyond? How quickly do you think the market will bounce back?

A: If the virus shutdown is less than three months, then there will be a quick, robust rebound and maybe even no change in the annual home sales. But a shutdown lasting over six months could lead to measurably lower sales. It is worth noting that even if sales slump, home prices are likely to hold on. There was a housing shortage before the virus. There will be even less inventory during the shutdown.

Q: Maryland Gov. Larry Hogan (R) this week closed nonessential businesses — including real estate offices. With real estate offices and open houses closed, what are prospective buyers supposed to do?

A: Consumers will do far more virtual tours of homes and will not waste time visiting homes that do not meet the criteria. So rather than visiting 10 homes physically in person, consumers would likely have narrowed to only two homes. The virtual visits of homes are likely going through the roof.

Q: The historically low mortgage rates have spurred a huge surge in mortgage applications. But lenders, who have been short-staffed for years, are unable to keep up with the demand. Should buyers expect huge delays in the processing of their mortgage application, and, if so, what can they do about it?

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A: Consumers should deal with it by waiting patiently after it is put into the assembly line.

Q: What should prospective sellers consider now?

A: Be selective in who is allowed to visit the home in the current environment. Home visits could be denied to non-serious buyers without mortgage approvals. But understand that fair housing is the law of the land, and do not deny visits based on race, ethnicity, religion, etc. Replace open houses with virtual open house tours with live Q/A.

Q: Some recorder of deeds offices are closed. What kind of snags can a buyer or seller with a pending contract expect?

A: Many employees of all firms are quickly adopting electronic communications and virtual office meetings. There is no reason why county recording offices cannot do electronic signature with virtual face recording of certifications to assure integrity of the transactions.

Q: Are builders slowing down construction?

A: Any slowdown is likely due to disruptions in the supply chain for materials. The demand was running high. And new home purchases can also be done virtually.

Q: Are appraisers and home inspectors still going into houses? If not, how will this affect buyers and sellers?

A: Home inspection is a small-crowd activity, nearly always just one person. So with gloves and face masks on, this should not be a major deterrence.

Home appraisals can be done externally with plenty of social distance. Internal appraisals may need to be waived (as the Federal Housing Finance Agency is recommending and permitting).