The Financial Impact of COVID-19 As It Relates to the Housing Market

When the National Bureau of Economic Research officially announced the 2020 recession in June of 2020, many American’s had already been feeling the financial pinch of the recession for months.

As you likely already know, the outbreak of the coronavirus (COVID-19) pandemic resulted in quick action to limit the spread of the virus. Precautions that closed businesses and required citizens to remain home unless they were deemed “essential workers” were immediately financially detrimental to individual earners, to businesses, and to the economy as a whole.

As we saw during the Great Recession of 2008, housing markets are closely linked to financial markets. But this is not 2008; this recession is unrelated to mortgage lending practices and we aren’t necessarily experiencing excessive housing bubbles. So just how badly will American housing markets be affected by the 2020 recession?  

A recent study by AceableAgent found several links between the COVID-19 recession and the housing market. Notably:

  • Homeowners and renters have struggled to make housing payments due to the economic fallout from the pandemic, many turning to their lenders and landlords to renegotiate housing payments.

  • Americans are largely in favor of having the government require banks to provide pandemic-related mortgage relief.

  • Some Americans have resorted to living rent-free with friends or family to ride out the recession.

Let’s take a closer look at this survey data and what it tells us about the financial impact of COVID-19 on residential real estate.    

The Financial Impact of COVID-19’s Unemployment on Housing

The COVID-19 outbreak has caused historic levels of unemployment in the U.S., second only to the figures seen during the Great Depression. In April of 2020, unemployment reached nearly 15%, with millions of Americans suddenly filing for unemployment benefits.

21% of americans missed a monthly housing payment aceableagent

Having such a high percentage of the population suddenly and unexpectedly unemployed naturally has a severe financial impact. And with rent and mortgage costs being the highest monthly expense for most of us, many people found themselves unable to cover their monthly housing payments. In fact, over 21% of survey respondents admit to missing a housing payment (mortgage or rent) due to the pandemic. 

Some people were able to work with their lenders or landlords to work around financial obstacles. Twenty-two percent of respondents report that they were able to successfully renegotiate their monthly housing payments. 

Finance expert and Analyst for Laura Adams, says, “The pandemic has brought a significant shift in features that homeowners and renters prioritize in their homes. Those who can afford to buy a bigger place or a second home are likely to move on that decision now, while interest rates are at historic lows. However, workers who are struggling financially will be left with few housing options and more debt than before the crisis, even though they could benefit the most from a low-rate mortgage.” 

Evictions and Foreclosures

To prevent a flood of evictions due to the inability to pay rent, the federal government issued an eviction moratorium to prohibit landlords from evicting tenants prior to December 31, 2020. This does not, however, relieve renters of the requirement to pay the full amount of rent due or face eviction on January 1, 2021 (unless the order is extended). 

This also puts many landlords in a difficult position. With mortgages to pay on their income properties, and reduced rent (or no rent) coming in, many landlords are unable to make their mortgage payments. Eighty-three percent of people surveyed are in favor of the government requiring banks to provide pandemic-related mortgage relief. And the government has provided some mortgage relief. Owners with a government-backed mortgage are protected from foreclosure through the end of the year, but again, they are not relieved of the responsibility to pay the full amount due by that time. And those without a government-backed mortgage are unprotected against foreclosure. 

Some Unemployed are Moving In with Family and Friends

The high unemployment rate has forced some people to abandon their apartments or homes and move in with friends or family. In fact, of those surveyed, nearly 10% are living rent-free with friends or family. While this may be a temporary solution to weather the pandemic and subsequent recession, for most adults, this is not a desirable or even feasible long-term solution. 

Some Renters are Now in a Better Position to Buy

Here’s some good news: White-collar workers who rent may be in a better position to buy today than they were before the pandemic. Interest rates are at historic lows, and with workplace-proximity no longer being of critical importance, those who can work from home have a solid incentive to buy a home in suburbs (or even rural areas) instead of continuing to rent in the cities.  

Future Housing Projections

As of August 2020, both home prices and the number of residential transactions were up from their outbreak slumps, nearing their pre-pandemic figures, indicating speedy recovery from the minor setback in the spring. 

Some experts even predict virtually no long-term interruption to the residential real estate market for a few key reasons:

  1. There is still high buyer-demand driven by low interest rates. That demand may have shifted away from the cities, but it’s still present.

  2. Those most impacted by the COVID-19 recession were unlikely to be in the market for a home anyway. It’s a sad fact that hourly workers in industries like retail, food service, and hospitality have been hit harder than most by the pandemic. From an analytical perspective, this means that the pandemic has not necessarily taken would-be buyers out of the market.

  3. Unlike the Great Recession, which was largely caused by risky subprime home loans and mortgages that over-extended homeowners, the 2020 recession did not originate in the housing market, and is largely separate from it. 

Despite the financial devastation caused by COVID-19, the housing market is poised to handle the fallout from the pandemic well.

Key Takeaways

The COVID-19 pandemic and subsequent recession is causing financial distress for many renters, homeowners, and landlords, as well as financial uncertainty for everyone. This is naturally affecting the residential real estate market. With only a bit of short-term relief offered by the federal government for renters and owners, Americans are looking for the government to require more mortgage relief from lenders.

With high unemployment, some people have been forced to stay with family and friends to avoid monthly housing costs. Others are in a better position than ever to buy a home, due to low interest rates and the new-found freedom for many office workers to work from home.  

Overall, the residential real estate market has weathered the pandemic well, and economists are optimistic that the housing market will continue to grow through the current recession, albeit at a slower rate than we would have seen had the pandemic not disrupted the markets.

Sarah Jeter

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