Coronavirus Impact on the Market
The Association of Realtors just released an article that listed their “Top 10 potential impacts that could elicit questions from buyers and sellers over the near term.” We have highlighted a few that we felt were helpful and relevant to our market:
Forecasts Have Been Downgraded, But Few Economists are Calling for Recession Yet:
Last week, the International Monetary Fund (IMF) cut its forecast for global economic growth by 0.1%, but is still calling for an expansion in 2020, albeit at a slower pace. Similar orders of magnitude have been forecast for the domestic economy, with groups like Wells Fargo and others expecting GDP to grow by 10-20 basis points slower than their pre-coronavirus forecast. Growth is expected to be slower, but the economy is still expected to grow.
Mortgage Rates Will Likely Remain Low, Or Even Fall Further As A Result of Coronavirus:
The Federal Reserve issued an emergency 50 basis point cut to their target interest rates, and guidance suggests that the Fed may be open to future reductions in order to counteract the negative impacts to financial markets. This should help to reduce the cost of borrowing and make housing more affordable over the near term, which should help to offset some of the negative impacts to housing demand associated with rising uncertainty.
Domestic Buyers May Be Discouraged By Rising Uncertainty and Recession Risk, But Is It Still a Good Time to Buy?:
This week, mortgage rates fell to an all-time low level of just 3.13%. That is down from 3.80% at the start of the year and represents significant cost savings over the life of a 30-year loan. For buyers who can afford their monthly payments, the economic uncertainty that is driving rates lower provides an opportunity to capitalize on significantly reduced borrowing costs that they will enjoy for years to come. Short-run risks to the economy exist but are arguably offset by long-run benefits of lower rates at the individual level.
New Home Construction in California Could Slow Further, Exacerbating Already-Tight Supply:
Many of the inputs to California’s Building Industry are sourced from Asian countries including China. As the coronavirus disrupts these supply chains, the cost of those materials may increase over the short run or become limited, which will increase the cost of construction and potentially reduce the pace of new residential development below its already-lackluster pace in 2020.
Low Rates and Fewer New Homes Constructed Should Place Upward Pressure on Home Prices:
Improved affordability stemming from lower rates combined with fewer new homes being constructed as the construction supply chain is impacted could lead to more upward pressure on home prices. Unsold inventory is already at low levels, and reduced construction activity means that is likely to continue—especially if buyers respond to lower rates.
In conclusion, we know that the world is not coming to an end, that this crisis will pass, and Real Estate remains one of the most stable investments we can make. The lower interest rates available today make trading up to the home you have always wanted more affordable than ever. If you would like to discuss your options and possibilities, please give me a call.
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