The Wells Fargo Housing Market Index revealed weakening sentiment among home builders and prospective new house buyers. But the report, created in association with the National Association of Home Builders (NAHB), shows an incomplete picture of the coronavirus effect.
It is important to note, half of the builder responses in the March HMI were collected prior to March 4, so the recent stock market declines and the rising economic impact of the coronavirus will be reflected more in next month’s report.
As the stock market crashes, and prospective home buyers worry about contracting or transmitting coronavirus, builders expect less traffic and slowing sales. Pandemic-related supply chain issues are also disrupting the housing market:
Overall, 21% of builders in the survey report some disruption in supply due to virus concerns in other countries such as China. However, the incidence is higher (33%) among builders who responded to the survey after March 6, indicating that this is an emerging issue.
By the time people go house hunting again, a likely coronavirus recession may forestall new home sales for years. New home sales declined precipitously from the beginning of the Great Recession in December 2007. The housing market didn’t begin to recover until the summer of 2011.
Realtors on the ground in several key housing markets say they’re expecting a housing crunch ahead. In Houston the dual impact of coronavirus and falling oil prices (central to the local economy) has realtors worried:
Coronavirus was not a factor in the February housing data, but obviously with the losses that Wall Street has suffered as well as declining oil prices, we are keeping a watchful eye on housing market activity.
Joel McRae, an Atlanta REALTORS Association spokesperson, said Atlanta real estate agents have “definitely seen a reduction in both buyer traffic and seller traffic.” Dan Elsea, president of brokerage services for Real Estate One, says Michigan home sellers are pulling their houses off the market.
Denise Schroder, an Oklahoma City realtor, says sellers there are also asking whether they should pull their homes from the market. Realtors in New York City also report buyers and sellers exiting the market over coronavirus fears. Southern California Realtor Suzanna Seini says because of coronavirus:
What I have seen is really the fundamentals of real estate changing a little bit.
The housing market chill couldn’t come at a worse time. Spring is the busy season for sellers to list and show their houses. But if buyers are worried about coronavirus, 2020 could be an absolutely brutal year.
As the economy contracted during the Great Recession, lending and cash for down payments dried up. So the housing market crashed and didn’t recover for years. Housing starts fell off along with new home sales.
According to credit rating agency S&P Global, coronavirus has already plunged the world into a recession. On Tuesday the agency said coronavirus has devastated the economy far worse than previous estimates.
The carnage in financial markets is so bad there’s serious talk about closing the stock market. Treasury Secretary Steven Mnuchin has had to assure investors the White House and Wall Street have no such plans.
In a grim sign for the housing market, real estate stocks have been hit especially hard.