Coronavirus has already crashed the stock market. Now it's creating a perfect storm for another housing market crash like 2007-2008.
While coronavirus has already ravaged the stock market, realtors also warn a housing market crash may be near. Denise Schroder, an Oklahoma City realtor, says clients are asking if they should hold off on selling their house until the pandemic blows over.
Another Oklahoma real estate agent says:
My concern isn’t so much the virus itself, it’s the overwhelming disruption it is and will continue to cause. We have seen some effects in Italy already, where they’ve temporarily suspended mortgage payments.
These disruptions could cause a housing market crash through fear and uncertainty. If coronavirus leads to an extended slowdown in the economy, there could be spillover effects into the housing market.
These might include rising unemployment and lower income resulting in missed payments. That caused the subprime mortgage crisis that sparked the last Great Recession. A slow economy would also increase debt-to-income ratios, especially with a record high household debt bubble.
As a result, fewer buyers would be qualified to buy homes, leading to a crash in demand and an end to the meteoric growth in housing prices. Coronavirus could not have come at a worse time for the housing market.
If I were a seller, I would NOT want a parade of unknown people going through my house touching things, sneezing, etc.
I believe we are fixing to experience a shift. I see a difference in age groups, my older clients have already decided to wait until after the election.
As well as:
I’m not panicking but I do believe we are about to experience a big shift in the market. I’ve already had several out-of-state buyers cancel trips
It’s not merely these anecdotes that forebode a housing market crash. In one of the hottest U.S. real estate markets, the California Association of Realtors is revising its 2020 forecast downward. California home prices and sales are likely to take a hit from coronavirus.
The association hopes lower interest rates may be enough to eke out a small gain for the year. But that might lead to a worse housing market crash in the near future.
The Federal Reserve lowered interest rates earlier this month. The Fed is also pumping $1.5 trillion into the banking system’s short term lending markets. Easy monetary policy is what contributed to the 2008 housing market crash.
The coronavirus may have just triggered the same macro environment that led to the worst housing bubble in history. According to Susan Wachter at the University of Pennsylvania’s Wharton School of Business, “a huge expansion in the money supply” caused the last housing bubble.
The last time the Fed lowered interest rates to 1% was from 2000 to 2003. That artificially stimulated demand for houses people could not afford, as well as risky financing deals from the banks.
In January, a Dallas-area realtor– someone who sells houses for a living— told the public his inventory wasn’t worth current housing prices. He argued low interest rates were creating a housing bubble.
That was before the coronavirus pandemic, before the emergency rate cut to 1%, and before the $1.5 trillion in additional money market liquidity.
Now that coronavirus has already made quick work of the trillion-dollar stock market rally since October (which just so happened to coincide with the Fed’s $77 billion a month liquidity injections to the repo market), it’s creating a perfect storm of disastrous conditions for another housing market crash.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com.
This article was edited by Sam Bourgi.
Last modified: March 15, 2020 4:28 PM UTC