The Effect of Coronavirus on U.S. Real Estate Market: Everything That You Need to Know

By: Jennifer Villalba

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The coronavirus outbreak is hardly four months old, but it has had an immediate effect on the U.S. economy and is likely to affect the U.S. real estate industry. Market’s new PMI figures showed that the U.S. economy hardly expanded in February as services–the biggest component of GDP–collapsed for the first time since 2013.

How Covid-19 Affected Businesses?

Microsoft and Apple’s updated quarterly revenue recommendations also suggest significant disturbances owing to the terrifying disease. It indicates that the epidemic could have an effect on the economic cycle.

Coronavirus is making a dent in the global economy. As demonstrated by the new reports on domestic sales, inflation, and manufacturing profitability. The highly contagious epidemic is continuing to interrupt trade and economic activity in key countries, leaving stocks vulnerable to catastrophic losses.

How It Affected The Real Estate Market?

At the beginning of 2020, it is said that the real estate world will be redefined this year as there will be a lot of changes that can be seen. But, the economic fallout caused by coronavirus is already affecting real estate in the main Asian regions. The U.S., real estate market, might be the next domino to fall. Real estate might be the next step in this process to get affected as coronavirus hits all aspects of the property market. The cost of building supplies could increase if foreign demand slows down. The net impact would be a decline in construction and an increase in property prices.

This is terrible news for first-time home buyers and many others struggling to keep up with increasingly rising property values. As it is, median wages in America remain marginally ahead of official inflation figures. Median house prices are increasing faster than wages.

Outbreak of Coronavirus from China

The devastating spread of coronavirus from China, which has sickened thousands and appalled millions across the globe, is also taking its toll on global financial markets— and is likely to affect the U.S. real estate industry. Even though there are only 12 reported and confirmed cases of infection on American soil. The U.S. real estate market is already experiencing the effects of what could potentially be considered a pandemic. Mortgage interest rates have plummeted, and the already stagnant luxury real estate industry has counted on the influx of Chinese buyers in recent years.

Investors from China paid around $13.4 billion on U.S. properties between April 2018 and May 2019, as per the NAR’s latest data on foreign investors. While this may look impressive, it actually represents a massive 56% decline from the previous 12-month span. Chinese buyers now spend less on U.S. real estate because of their government-enforced restrictions on how much capital would leave the country. U.S. visa laws have also been rigidified, and due to heated trade negotiations between the two countries.

And with the temporary ban on any visitor who has been in China for the last two weeks and the cancellation of many flights from China to the U.S., a lot of Chinese investors can’t get to America.

So Why and How Exactly is the Coronavirus Pushing Down Mortgage Interest Rates?

Coronavirus can be a Black Swan occurrence that causes a significant economic crisis in the United States and around the globe. The stock market has already been priced in such a contraction. The spillover effect could have an impact on real estate relatively soon.

Recollect that perhaps the Fed already had cut interest rates even before the coronavirus came on anyone’s radar. Through lowering rates, central bankers have essentially admitted that the recovery is not as powerful as they have shown in their FOMC policy proposals.

Although lower interest rates are a boost to house sales, they are declining at an astonishing rate. This is generally a sign that perhaps the economy is now in a bad condition Performance in the U.S. stock market also indicates that creditors are planning for a potential slowdown in the coming year.

Unlike previous Fed policy waves, the real estate market is far from safe during this period. The inevitable consequence would be to proceed to boost the property bubble and ensure that mortgage rates could never be stabilized again.

It might seem bewildering that an infection that emerged in China (where more than a thousand deaths and counting have occurred) may lead to reduced mortgage interest rates miles away. Thanks to globalization. China is the second-largest economy in the world, with a production chain. So what occurs in China has a huge impact on companies around the globe, which then causes disruptions to global financial markets. In the wake of market turmoil, creditors tend to pull funds out of the share market and position it in better, more secure U.S. Government bonds, yes. And when bonds are solid, mortgage rates drop.

“China is the world’s second-largest economy, with a worldwide supply chain,” realtor.com® reports. “So what happens there affects businesses around the world, which then affects global financial markets. Amid market turmoil, investors tend to pull money out of the stock market and park it in safer, more stable U.S. Treasury bonds. And when bonds are strong, mortgage rates fall.”

The Other Side of the Story

Some estate agents beg to differ. Although coronavirus proliferation is a new phenomenon, the decline in Chinese real estate investment in the U.S. is so not. NAR announced that Chinese investors are responsible for $13.4 billion in sales in 2019. It was a significant drop from 2018 when Chinese spending in the U.S. real estate market contributed to $30.4 billion.

The decrease in buying behavior can be attributed to a few various reasons. Among the tensions created by the US-China trade war, house sales to Chinese buyers have seen a drop in Chinese nationalists ‘ overall interest in U.S. property investment. The trade war has triggered a sharp decline in the Chinese yuan compared to the U.S. dollar. To make the situation even more difficult for Chinese buyers in the U.S. real estate market, the Chinese government has introduced new rules on overseas real estate investment. The new restrictions set a serious investment cap, which prevents investors from spending more than $50,000.

Although local brokers are seeing some customers exit from the deal right now, it is probable that there could be a rise in foreign demand in the U.S. property market in the wake of the coronavirus. Chief Economist at NAR, Lawrence Yun, assumes that Chinese investors would turn to the U.S. real estate market for support. He believes- “The demand for U.S. real estate may actually rise from wealthy Chinese because they’re getting tired of this type of situation where Third World-type market behavior crops up.”

In some U.S. property markets, buyers and real estate investors are vying with wealthy Chinese investors. When foreign demand continues to decline due to coronavirus over the hot spring and summer seasons in areas such as the New York real estate property market, college towns, and the West Coast real estate market, it may make it much easier for the U.S. investors to reach the real estate market. Combined with lower mortgage rates, investing in real estate, or owning a main residence could become a more economical option for residents.

“Chinese buyers have faced headwinds in recent years from capital controls in addition to the general headwinds of rising home prices,” said Hale. “The epidemic is likely to hamper their ability to participate in U.S. real estate in the short run, but it may lead to more interest in the long run as buyers may seek to be more internationally diversified.”

So Amidst Everything that is Happening, How can the People Living in Rental Apartments Stay Safe?

Face masks are not required by healthy people (some are obviously too loose to prevent inhalation of the infection) unless you are treating those with symptoms. But CDC (Center for Disease Control and Prevention)  recommends that they should be used by those with symptoms to discourage others from being sick. Daniel Wollman, CEO of the property management company Gumley Haft, says, “ordering masks, gloves and routine cleaning supplies like mops and sponges, but at this point, no direction has been provided by government agencies on approved materials or procedures.”

The standard preventive recommendation is to scrub and disinfect regularly handled surfaces with common household cleaning sprays or wipes. The CDC further pointed out that although it is feasible to even getCovid-19 by contacting the surface of the virus and then rubbing the face. This is not believed to be the main way the disease spreads. The main transfer is assumed to be patient-to-person between people in close contact by respiratory drops created if an infected person sneezes or coughs.

What if Someone in your Building is Affected?

The standard advice from the city is that anyone with flu-like signs who also has a link to any nation infected by the outbreak should be sent to a hospital immediately.

New York City has 12,000 hospital wards, which can be made accessible directly to anyone testing positive for the infection. So it is believed that anybody with the virus will be treated in the facility. Although there are still no clear guidelines from the CDC or the Health department as to whether an infected individual should stay quarantined in a unit or leave the building and be quarantined in a public health hospital.

Wollman adds, There are going to be certain rights these people also have, and they are going to have to be balanced with what is going to be right for the rest of the people who live in the building. It’s going to be very complicated. We don’t know what some of those steps are going be,”

The best way to protect yourself from this situation is to take as many precautions as you can.

  • Wash your hands well and always with soap and warm water, particularly after sneezing and coughing or before eating or using the objects that many others may have used, such as the Subway.
  • Avoid rubbing and touching your face, eyes, mouth, or nose, especially with dirty hands.
  • Cover your mouth and nose whenever you cough or sneeze.
  • If you do not have tissue paper with you, cover your mouth with your forearm when you cough. Do not re-use a tissue, use it well, and dispose of it.
  • Wash surfaces of alcohol-based or chlorine-based cleaning agents.
  • Sanitize to your hands every time you shake hands.
  • While leaving home, always wear your gloves.
  • Keep changing your gloves.
  • Keep changing your towels, keep them fresh and clean. Label them if needed. Even as family members, you should not use each other’s towels.
  • Do not share utensils and cutlery
  • Be very careful while touching doorknobs and faucets.
  • When you see a clear, sunny day, make sure to open all the windows to let the fresh air and sun enter your apartment. But not for long.

 

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