How a Late-2020 Quarantine Could Affect the Real Estate Market

From the beginning of the pandemic, many states, municipalities, and business owners emphasized the need for a return to business as usual, with some precautions in place but many of the most stringent shutdowns quickly ending. Now this fall, many schools opened as usual only to close in the ensuing weeks. Many businesses resumed normal operations only to find themselves facing a new round of closures as COVID-19 cases surged and medical systems were overwhelmed.

A new round of potential closures threatens to return many markets to the early days of the pandemic. All of this is happening at a time when buyer demand continues unabated and real estate agents and brokers are already struggling to find sufficient home inventory. How would a late-year quarantine affect the currently red hot real estate market?

bar graph1. Even tighter inventory

Of course, the current limited levels of inventory would potentially be contracted even more as sellers resist making any major moves until they know that they will be able to find a new home on the other side of the closing. This may be especially true of luxury buyers who will struggle to find any property comparable to their current one and who may not be as motivated by the potential for marginally higher home valuations or low interest rates.

stack of coins2. Even lower interest rates

It’s hard to imagine that interest rates could go still lower, but they may in order to stimulate demand. In addition, current low interest rates probably won’t be going anywhere anytime soon. They should remain in place until well into the 2021 market, especially if a workable vaccine does not appear until the spring or if the economy at large suffers following renewed shutdowns.

people talking at a table3. More motivated buyers

Buyers in many markets are currently at a fever pitch, outbidding each other and buying properties with information-only home inspections. We may see many of these buyers stretching their budgets to the max in order to find the right property and nab it at a record low interest rate. In addition, many buyers may be willing to forgo their wishlist in order to get into any available property now, then look for their dream home later.

two women at table on computers4. Lagging first-time homebuyers sector

One area that may suffer is the first time homebuyer sector and the small in-town lofts and condos that are their preferred starter homes. As young professionals flee from the city and buyers in general try to avoid high-density residential areas, these smaller homes may be the one niche where inventory is less problematic, but there may also be less demand for them.

woman standing with arms open5. Return to virtual tours

One of the bright spots that facilitated the ongoing success of real estate agents in markets large and small was their willingness to craft new ways of marketing properties for sale. Virtual closings kept scheduled settlements on track while virtual open houses and home tours offered buyers a glimpse of available properties. In the past few months, many of those initial restrictions have eased, but we will no doubt see a return to virtual showings, video tours, and other socially distanced transaction management options.

country dirt road 6. Greater suburban and rural demand

A second wave of shutdowns may convince even more companies to make work from home a permanent option for their employees. Just as we saw earlier this year, that spells good news for suburban and rural markets that normally don’t benefit as much from movements in the real estate market at large. With their larger lot sizes, increased privacy, and more robust recreational options, many buyers may choose to create their own little residential oasis far from the crowded cities.

writing on paper7. Rising demand for long-term rentals

Low inventory may create an increasing demand for long-term rentals as sellers bide their time before purchasing their next home. Homeowners who are selling at the top of the market may be reluctant to put that extra equity into a purchase that they consider overpriced. Long-term rentals could give sellers comfortable residential options while they wait for their dream home, and for market demand to return to pre-pandemic levels.

ocean view with palm trees8. Rising demand in resort areas

Demand may be especially high in coastal and resort areas where families can work and attend school virtually while enjoying outdoor spaces and recreational amenities. These may be especially attractive to luxury buyers who are struggling to find that special property given today’s low inventory environment.

 

close up of globe9. Rising demand in international markets

Some buyers may choose to spend a year or two overseas, allowing them to take advantage of greater residential availability and experience the charms of travel with less risk. Markets in countries that have been particularly good at managing COVID may be even more in demand, as will resort areas offering greater choice and affordability than luxury enclaves in the US.

infinity pool10. More static luxury sector

While the luxury sector was an early beneficiary of the COVID-driven demand for larger homes with pools and tennis courts, many luxury sellers are now reluctant to look for greener pastures elsewhere. This could cause stagnation in the luxury market, thus luxury brokers will need to offer potential sellers a strong array of options to convince them to give up their current digs.

 

Taken in tandem with the upcoming holiday season, a late-year shutdown could have a chilling effect on some areas of the market. However, continuing consumer demand and activity in rural and secondary markets, as well as the ingenuity and innovation of motivated real estate professionals, should be enough to keep transactions moving forward well into 2021. In addition, good news surrounding vaccine trials will likely help both buyers and sellers feel more confident about their options over the next few months.