With the COVID-19 virus and many uncertainties nested among us, we are likely going to see many changes in the real estate market as a result in the time to come.
Uncertainty surrounding the long-term effects of COVID-19 has paused real estate activities. The pandemic’s negative impact on business prosperity, job stability, investment portfolios and household income could be reflected in buying power to decline and increased supply over demand on both residential and commercial real estate markets.
During March and April, demand for residential rental units, whether long term leases or Airbnb, has declined substantially not only due to the physical distancing and travel restrictions but also due to a reduction in income, loss of jobs and uncertainty of job security. Many previously rented Airbnb units have been repurposed for the long-term rentals, which has brought the rental price down.
For those who invested in residential real estate for income, this can be a call for an adjustment. Less rental demand, lower rental price and rent defaults, may find many investors and landlords considering selling their investment properties.
For many who planned to step into the real estate market for the first time, dreams may be fading away. Savings have been diverted from the down payment to cover expenses and for the basic survival, and the ability to qualify for a mortgage could change for some of them. The hope for those will be reduced price of the real estate properties, proportionally smaller down payment and cheaper finance.
The impact of the COVID-19 on commercial real estate is expected to be more significant. We are likely to see rising vacancy levels and a decline in property values. With businesses closing temporarily or for good, downsizing their office or retail space, with tenants without a steady source of income to fund their obligations, many small property owners with mortgage obligations will most likely put their properties on the market to sell.
Even if it seems that COVID-19 has slowed down supply in the real estate market during March and April, it is only due to the impetus of restrictions imposed by the government. However, we may see very soon exactly opposite, a higher supply than demand as many property owners may be forced to sell for the reasons for avoiding mortgage default, paying down debt or even downsizing. As a result, we may see a reduction in the real estate price, some real bargain and a more affordable housing market.
On the bright side, the low mortgage rates are here to stay for a prolonged time. For the stable real estate investors looking to expand their real estate investment portfolio, the new real estate market conditions will represent an attractive and one of the lifetime opportunities.