COVID-19 and what might happen to the Real Estate Market
(Updated) Beginning next week, April 27th, real estate showings will be allowed. This is going to give a small boost the real estate business.
This is one of the more difficult Vlogs I’ve ever prepared for because my opinions change daily. But over the last few weeks, I’ve become more resolute in my thoughts on the real estate market and how it’s going to be affected going forwards.
This is nothing like the 2008 real estate crash. This is a health crisis and not a housing crisis. But, real estate will be affected. Housing market doesn’t always contract during recessions but with 70% of the economy being consumption, well much of that is on hold.
I’m going to focus on two markets, primary homes and second or vacation homes.
With real estate, and I believe this to be true for Steamboat and the rest of the country, if we isolate out primary residences, then those value will likely go down, but not as much as one might think.
Inventory is still very low. Even lower today because many owners have withdrawn their listing to reduce their exposure from the virus. Another reason is we are living in our homes for twice as long as we used to. In 2019 the average person living in their home is 8 years, 3 months. Back in 2000, it was just 4 years. We also have less buildings of new homes. So, supply remains low, both in Steamboat and nationwide as a whole. Now, over the last month demand has slowed considerably. But once we begin to emerge out of the current crisis, I see demand picking up. However, with so little demand, many sellers who need to sell will likely begin reducing prices to attract those willing to step forward with a purchase. I see values dropping between 5-10% over the next few months. The sooner this crisis ends the better. But I don’t see prices rebounding anytime soon. There’s a lot of financial uncertainty we need to get through first.
It’s projected that the location neutral work-force might increase by as much as 30% as we’re seeing companies accommodating these work-from-home measures. I also feel that smaller town, communities like Steamboat that offer so much, will be sought after as a more healthier lifestyle becomes a priority. So long-term, towns like Steamboat Springs will grow and more people will want to make Steamboat their home and thus, real estate values will go up.
Roughly half of the properties in Steamboat are second homes or ski condos. I believe this market is in for a rougher ride. Since many of these owners look to generate income from short-term rentals, the outlook on tourism and rental income is up in the air. Given much of the Steamboat economy relies on tourism, it’s really hard to predict when we’ll see capacity numbers again.
These secondary residences are also discretionary purchases and with the economy going though turbulence, I feel we’ll have less buyers today over the next year or two. And while interest rates are at an all-time low, the jumbo loan market (loan over 625,000) have pretty much evaporated with most lenders not able to offer such loans. Demand for jumbo mortgages has dried up as investors turn to mortgage bonds for government-backed loans where they’re assured of receiving payments.
Another reason the second home market could see decreases in value is because a higher percentage of our buyers come from Texas. And we all know there’s oil in Texas and oil prices are significantly low right now.
To conclude, the Steamboat Springs economy relies on tourism and consumer spending. Sure, locals can keep this town going but we’ll need to see people getting out and vacationing to see real estate number rebound. So not only will it take for jobs to return, but travel and tourism needs to get back to normal or Steamboat will be a quiet town.
Want to learn more? Check out the links below for more insight into the Steamboat Real Estate Market.
Charlie Dresen 970-846-6435 or Charlie@SteamboatsMyHome.com