Unintended Consequences of the Coronavirus Pandemic

What Could Go Wrong During The Pandemic?

Over the past several weeks I have been tracking and reporting on the housing statistics for Jefferson and Shelby Counties in Alabama to see what effect the Coronavirus pandemic has had on the residential market. I will continue to report on this, however, in today’s post I’m going to be discussing the unintended consequences of the Coronavirus pandemic on the housing market.

Unintended Consequences of the Covid 19 Pandemic

When we study what is going on in the market we can discuss the various metrics that are impacted such as pending sales, new listings, listings put on hold, and sales volume. There are numerous unintended consequences from the pandemic that will affect these metrics and in turn the real estate market.

Unemployment

One of the biggest negative effects of the pandemic, not medically related, is the shutting down of the economy. Millions of people have lost their jobs causing the unemployment rate to skyrocket.

As of the writing of this article, the national unemployment rate is hovering just under 15%. Because of this, people are having a difficult time paying their bills, including their mortgages for those that are buying a home and rent for others.

Here’s a breakdown of how the Alabama unemployment rate compares to the country.

Birmingham vs Alabama unemployment

  • United States: 14.7%
  • Alabama: 12.9%
  • Jefferson County: 12.6%
  • Shelby County: 9.2%
  • The unemployment rate for Alabama jumped from 3% in March to 12.9% in April

Alabama’s unemployment rate is around 2% less than the country with Jefferson County at 12.6% and Shelby at 9.2%. This is definitely cause for alarm in the housing market because if you don’t have a job you can’t buy a house or make your house payment.

There is a question as to whether the stimulus package passed by congress is sufficient to help Americans pay their most basic housing costs. This lack of income will no doubt result in potential foreclosures that could have a far-reaching impact on the housing market.

Many lenders have offered mortgage forbearance plans to homeowners but even these programs that were set up to help homeowners could come back to bite them if it only postpones payment for a short period of time only to have the entire amount due before people have gotten back on their feet.

The Federal Housing Finance Agency (FHFA) recently introduced another option to help homeowners who may be in a COVID-19 related forbearance. It will allow them to repay their missed payments at the time the home is sold, refinanced, or at maturity.

If the great recession of 2008 taught us anything it is that foreclosures could have a devastating effect on home values. Many homeowners will no doubt slip through the cracks and will lose their homes which has the potential to flood the real estate market with inventory and possibly result in a downward trend in home prices.

So how should sellers react to these unintended consequences? What strategies should they use?

Here are some things to consider:

  • Be aware of any homes in foreclosure in your neighborhood. An increase could signal a potential downturn in the market.
  • Keep a close eye on the price levels of homes in your area. More foreclosures could drive prices down.
  • With increased inventory comes a potentially longer time to sell since there is more competition.
  • Know what the value of your home is. Pricing in this type of market is critical because if you price too high in comparison to the available inventory your home will sit on the market.
  • Make sure the curb appeal of your home is the best it can be. While a foreclosure home in this type of market is far different than what it used to be it may still be a little rough so you should give buyers every reason to choose your home over one that is not in tip-top shape.

Question

Do you have any questions about the market during this pandemic? Situations, like we are going through right now, can cause confusion in the real estate market so if I can assist you in pricing your home feel free to contact me. As always, thanks for reading.

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Comments

  1. I’m seeing some pretty strong demand for single-family homes in my area. I can only speculate that some people are fleeing more crowded urban areas.

    • I’ve heard the same, Gabe. I know that Jonathan Miller, an appraiser from New York, has looked at this and is studying any new trends that may be emerging. I guess only time will tell if this is a long-lasting trend.

  2. Great charts Tom. I’m anxious to see how unemployment unfolds in coming time. These rates are unreal. Hopefully a good chunk of folks are only temporarily unemployed. We shall see.

    • I agree, Ryan. I think that a large part of the economic recovery henges on how quickly people can get back to work. This will help reduce foreclosures and help to fuel the economy.

  3. Robin Roush says

    I’ve cut back on the number of appraisals I’ve done this year. I haven’t done a deep dive but it appears that low inventory combined with low-interest rates has resulted in higher prices than one might imagine. In Central Ohio, low inventory has been a problem for a least the last 3 years but when you throw in these very low rates home prices rise.

    • Yes, Robin, that sounds like my area as well. Generally speaking, the country needs more inventory to satisfy demand and help level off housing costs. Many people cannot afford to buy, especially new construction. One suburb of Birmingham has an average price of new construction at around $500,000. It is very difficult for first-time buyers to afford a new home if they want to live in this particular area.

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