(Note: we’ve put together a more recent article with the latest on how COVID-19 is impacting Bend and Eugene’s markets, and where things are likely to go from here.)
If there was any doubt since the first cases of COVID-19 were reported late last year, it’s finally becoming crystal-clear: Coronavirus is a big deal. But the question needs to be asked: is Coronavirus a big deal for Oregon’s real estate markets?
Much is still uncertain, of course. A lot will hinge on just how much daily life ends up being disrupted by the virus.
If you’re thinking about entering the real estate market, you’ll want to know what you’re in for in both best-case and worst-case scenarios. Luckily, that’s what we’re here for–not to give you all the answers, but to help you make the decisions that best meet your needs and the realities of the changing world we live in.
Plummeting Stock Prices and Record-Low Mortgage Rates
As the extent of the disease’s spread has become more clear, economic anxieties have rippled further and further into public consciousness, sending stock markets tumbling. March 11 marked the official transition into a bear market, with the Dow Jones falling 20% below the previous month’s peak.
Of course, there’s more to the economy than just the stock market. For one thing, when stocks fall, investors turn instead to treasury bonds. Those, in contract to stocks, are pretty much insulated from the day-to-day economic turmoil that we’re seeing right now.
When there’s more demand for bonds, their price rises, resulting in lower yields for investors. That allows mortgage rates to drop because they can now compete more effectively with bonds for investors’ dollars on the secondary market.
One of the results is that we’re now seeing historically low 30-year fixed rates for conventional mortgages: an average of just 3.29% nationwide as of March 5.
That fact just by itself would tend to indicate a boon for the housing market. Just a few weeks ago some folks were arguing that Coronavirus-related fears might have a positive impact on real estate demand.
The same article points out that in an early February U.S.-based consumer confidence survey, only 7% of respondents rated Coronavirus as a major factor. Meanwhile, a late February article by Bloomberg suggested that the national housing market was “set for its strongest spring” since before the 2008 crash.
Needless to say, a lot has changed since since then. It’s really only been in the past several weeks that public perception has caught up to the potential scope of the disease and the economic fallout that might result. Prognostications like those above now seem naive.
Our not-too wild prediction is that market activity will decrease nationwide as the Coronavirus continues to spread. But will the result be a holding pattern that shifts eventually? Or will the health of the market take a serious enough hit that the road to recovery is long and painful?
Reading the Temperature of the Real Estate Market
Over the coming weeks, both buyers and sellers will be asking themselves: is some return to normalcy imminent, or is the worst yet to come?
Let’s assume–and it’s a pretty safe assumption–that we haven’t seen the worst of what the Coronavirus has in store. The first case in Oregon was discovered February 28 and the total number of confirmed cases is now 32 as of March 14.
How far the virus (and the effort to curtail its spread) extends into the lives of Oregonians will depend on a number of factors. Right now we’re in a stage of ambiguity. People are concerned, but nobody knows exactly how things will play out.
That means a few different things for Oregon’s real estate markets. Spring is the time when market activity usually picks up, and following a strong finish to 2020, a lot of that momentum might carry forward anyway, at least for the time being.
Preliminary data for March does suggest that to be the case. There are also plenty of anecdotal reports from agents and lenders suggesting that business is as good as ever. Still, we expect certain trends to play out as the plot continues to thicken with COVID-19.
How the Coronavirus will Impact Oregon Sellers
Some sellers, fearing that conditions will deteriorate and make it more difficult to sell, will choose to put their homes on the market while things are relatively stable. That’s especially likely if they think they can get a quick sale.
On the other hand, those whose homes would be a tough sale even in the best of conditions may choose to wait things out. That of course includes properties on the premium end of the market. With luxury buyers’ investment portfolios hurting, these homes will certainly be more difficult to sell. Others will likely choose to pull their homes off the market, reconsidering the decision to trade up, downsize or relocate for the time being.
Looking further ahead, let’s say that vast numbers of people are forced to self-quarantine, causing regular life to grind to a halt like we’re seeing in Italy right now. People obviously won’t be putting their homes on the market because buyers won’t be going out looking at homes.
It’s only after COVID-19 has done the worst of its damage that we’ll be able to assess where things stand economically and what the impact on the housing market will be.
Of course, a recession is becoming more and more likely as the economy is disrupted further and further. It’s pretty much a given that some people will lose their jobs and need to sell their homes.
Nonetheless, the conditions that would trigger a sell-off are unlikely to materialize except in the very worst-case scenarios. Inventory in close to all of the nation’s largest markets was significantly lower in January of 2020 compared to a year earlier. That includes Portland, Oregon, where inventory dropped by 16.2%.
There simply haven’t been enough homes to meet buyer demand. That’s certainly the case in both Eugene and Bend, where we do most of our business. It would therefore take a pretty significant influx of properties and a decrease in buyer activity to put a serious dent in home prices.
In most of Oregon’s major markets, prices have appreciated steadily for the past few years without skyrocketing to the point where they’re anywhere near as vulnerable as they were prior to the 2008 crisis.
That doesn’t mean that these markets might not be due to flatten a bit even in the best of circumstances, which was our prognostication late last year. But there’s reason to believe that Oregon’s most desirable markets, Eugene, Bend and Portland included, are unlikely to fall too far into the red in the aftermath of the Coronavirus.
We’ll delve further into that argument. But first, what’s likely to happen to buyer activity?
How the Coronavirus Will Impact Oregon Home Buyers
It’s obvious yet bears mention: lower interest rates won’t in and of themselves lead to more buyer activity. True, many buyers will be in a better position to finance a home purchase, assuming their employment isn’t affected by the virus. The question is whether or not those buyers choose to make use of that opportunity.
Of course, all the mortgage rate decreases in the world won’t help buyers who have their wealth tied up in stocks or in accounts that are linked to the stock market (like many retirement accounts.) These would-be buyers are now in a much worse position to finance a home purchase than before.
Low mortgage rates may indeed encourage buyers to enter the market who were otherwise on the fence. That’s particularly likely if signs start to point toward the virus being under control. We may even see a surge of buyers hitting the market later in the spring or early in the summer.
But we predict that the economic and practical impacts of the Coronavirus will outweigh the effects of low interest rates. Oregon’s most desirable markets are already on the edge of what most buyers can afford.
Interest rate-related hyperbole aside, there’s little in the way of a silver lining to encourage already hesitant buyers to enter the market. Meanwhile, disruptions in supply chains mean that purchasing new construction will be a more difficult and potentially costlier endeavor than before.
Still, with inventory as low as it is, there’s plenty of room for buyer activity to drop before leverage begins to shift significantly away from sellers.
Buyers who do brave the market may benefit from less competition depending on the price point. But with less homes hitting the market for now, it’s unlikely that buyers will face a drastically different playing field. Sellers, however, may be willing to entertain lower offers than they might otherwise, given the climate of uncertainty.
In addition to the above considerations, it’s important not to underestimate the impact of buyers fleeing to Oregon from more expensive markets.
It’s true that markets in California and Washington may see more significant drops than markets in Oregon when all is said and done. But lower prices at home are unlikely to change the minds of those who for various reasons are already inclined to move to Oregon.
Buyers will only find true relief in Oregon’s tightest markets if a significant number of homeowners are forced to sell. That’s a definite possibility, but it’s far from certain.
Inventory, basically, is still the alpha and omega of how things play out in housing markets. As long as inventory in Oregon’s most desirable markets remains low, prices are unlikely to budge significantly.
Still, in the event of a major recession, that balance will certainly shift. Less buyers will enter the market, and more people will be forced to sell their homes.
The conditions that could lead to the drastic see-saw that happened in 2008 seem unlikely. At that point, the real estate market was artificially inflated by all manner of questionable financial practices. The situation we’re seeing in 2020 is that Oregon’s markets have appreciated because people want to live here.
All the same, it’s good to be cautious. How stable is your employment, and how willing and able are you to ride out a recession?
We feel pretty confident in the longer-term health of Oregon’s markets. We’ve already seen plenty of people coming to Oregon from states like California and Texas who consider themselves climate refugees, and that will become more and more of a factor in the years ahead.
Our Final Diagnosis: Be Cautious but Optimistic
There’s obviously a lot that nobody knows right now, ourselves included. Once market data is available for the month of March, we’ll be able to assess with more assurance just how Oregon’s real estate markets have responded to the outbreak.
In the meantime, the decision of whether or not to enter the market is, at is always has been, a deeply personal one.
Right now is a good time to take a deep breath. It isn’t that everything is simply going to return to normal. Still, if you recently purchased a home and fear that you’re about to go underwater or if you are a buyer eagerly awaiting a 2008-esque fire-sale, we’re confident that a more measured response is in order.
Oregon home values aren’t going to plummet significantly except in a worst-case scenario. What we can say with confidence is that in the months to come, it will be somewhat more difficult to sell most homes. Meanwhile, it may or may not be slightly easier to purchase one, assuming you can go outside.
We will update our prognosis as the situation develops, but for now, our advice is to let the Coronavirus be just one of the factors that you consider in deciding whether to sell or purchase a home in Oregon.