How will the Coronavirus Impact Various Real Estate Markets?

June 19, 2020

It can be argued that practically every industry in the United States–and the world, for that matter–has been upended by the spreading of the coronavirus. From retail to entertainment, professional sports to travel and tourism, not one industry has been immune to COVID-19’s economic impact. One such industry that has really felt the effects of the virus is real estate markets, which has seen a sharp decline in interest from potential investors and clients for real estate agents.

In fact, the number of contracts signed for co-ops in New York City fell by 80 percent from a year ago to 125, meanwhile condo deals dropped a significant 83 percent. Whether it’s showing new properties or handling Real estate appraisal tasks, the industry is affected from coast to coast. The sectors that have been hit the hardest are hotels, restaurants, bars, and other entertainment retail followed by housing, particularly luxury homes.

However, states are opening back up and the number of those affected by the virus on average continues to drop steadily. This may mean that the real estate market could see a rebound in the near future, but it also means that professionals and investors in the industry need to continue to seek out education and statistics to plan for the future.

While the impacts of the virus are obvious, the effects are not permanent. Here’s a better look at how the coronavirus is impacting and will continue to impact various real estate markets.

Housing and Homebuilding

Homebuilders are seeing not only a demand pullback from home shoppers staying home, but also the supply impact of materials that are normally imported from China, which supplies more than 30% of housing materials alone. The virus has also had an impact on potential buyers as builders are seeing a large drop in sales.

There is also an intensifying concern about tighter lending conditions for non-conforming home mortgage loans as buyers who have a debt-to-income ratio higher than 45% are seeing more difficulty getting mortgages.

What’s more, economists are keeping an eye on how the stock market crash in March will affect the consumer spending market in the coming months. While businesses reopen and the stock market continues its steady rise back up, consumers are still cautious to spend more money than they have to, and that includes on real estate. Those who have been planning on buying a home may now have to shift their plans, and that could impact absorption rates.

Where do apartments stand?

The rental apartment industry has already been dealing with ways to work with tenants who have lost their income, either partially or fully, as a result of COVID-19, and are unable to pay their rent. A large number of apartment tenants will ask for a month off or to redo their current lease to add one month’s rent. Landlords are seeking to emphasize retention, which means they are giving tenants some more leniency than usual on late payments moving forward.

In the long-term, the outlook on rentals remains positive even in light of demographic movements that are still developing. Lease renewal rates were moving along strongly before COVID-19 hit in early spring as apartment construction was running at more than 500,000 units annually.

Other Sectors within Real Estate

The impacts on retail real estate markets, such as development, have been obvious in the current state. Restaurants and stores are starting to regain traction in their normal revenue as shoppers and diners begin to filter in at smaller capacities. This effect is expanding through the economy as landlords continue to brace for more requests for late rent or rent relief from their tenants.

When it comes to office real estate, most office space is empty under social distancing rules and measures right now. But after the crisis subsides significantly, offices will be filled again. The long-term question that businesses are looking at is whether or not to keep work-from-home options open for employees, or integrating work-from-home options with on-site work. This might influence companies to shift to a more remote style of work and move away from bigger office space and office real estate.

While the economy and the effects of COVID-19 are still evolving, real estate markets and industries are not doomed indefinitely. Instead, the industry continues to push forward and make the adjustments needed to maintain their business. As economies slowly reopen, we aim to keep you updated on the latest developments and are here to assist you in your real estate insurance and business needs.

About Associations Liability Insurance Agency (ALIA)

The ALIA Team (part of the Riverton Insurance Agency Corporation), specializes in helping real estate professionals find the affordable and comprehensive liability insurance they need, without the hassle. ALIA dates its roots to 1991 with the founding of FREA, Foundation of Real Estate Associates. In 2013, ALIA was created to work with multiple insurance companies thereby broadening the portfolio of products to customers. For more information about our products and services, contact us today at (800) 882-4410.