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How Will Home Prices Change in Light of COVID-19?

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To keep the medical system from being overwhelmed, the economy has, in many sectors, gone into stasis. The real estate industry has seen inventory drop substantially as open houses and other sales tactics become taboo and seller interest dwindles, balancing supply and demand. Yet there may be problems lurking in the future.

The Present: No Demand, But Also No Supply

Right now, the problem is less pricing than sales. There's little demand, as people stay home and take stock of the economy. Yet since there was already too little supply in many markets, and potential sellers have taken their homes off the market, the result has been an economic balance. This is cold comfort to the real estate industry as lower overall sales batter realty companies, but it does mean that, at the moment, there's little chance of a housing price crash overall.

However, the current situation won't last forever. There are already a few factors that need to tending carefully, or a crash could well be in the future.

The Future: Too Much Or Too Little?

The first factor is the most obvious: At least 26 million jobs have been destroyed by the economic consequences of COVID-19, as of this writing, with more likely on the way. It's not clear yet how many of those millions will have jobs to come back to or the ability to go back to them. Nor is it clear how many of them are mortgage holders.

Second, as the government has ordered mortgage payments put on hold, mortgage servicers are facing a crisis not all of them will survive. Where their mortgages wind up and how they're handled could mitigate any problems or flood the market with inventory, depending on how the dice fall.

Third, plummeting mortgage rates have also put a squeeze on lenders. Rates are so low that thirty-year mortgage holders can refinance to fifteen years, and once the current situation lifts, we could see a "sugar high" of prices as new lenders flood in, setting the stage for a crash when rates inevitably rise again and that demand dries up.

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Finally, there's the rental question. All of the above issues not only apply to rental properties, but as Airbnb has faced a crisis of collapsing bookings, it's rapidly become clear that the platform was locking up rental properties that could have gone to long-term residents. A surge of rental inventory may drain supply from the buyer's market, especially if high numbers of foreclosures force more customers into renting.

The impact will vary widely. Metropolitan areas were already facing a housing crunch and will likely use the post-COVID world to make changes, such as banning certain types of rental listings on Airbnb, or accelerate ones already in the works, including major zoning changes, to increase construction and create jobs.

Suburban areas were facing a murkier future; some may find themselves struggling to maintain prices as more homeowners struggle to find new jobs. Others may see stability or even a supply crunch as homeowners refinance on shorter terms and stay put. All of this is on top of major changes as Baby Boomers retire and either age in place or move, and Millennials become the largest generation in the real estate market. Keep a close eye not just on national trends, but regional and local as well because Americans will see very different housing prices in different regions as these factors unfold.