What started as a health crisis earlier this year, has impacted millions of Americans and quickly become a financial crisis as well. Due to the COVID-19 pandemic, the current economic climate is being compared to the 2008 financial crisis which resulted in a housing crash due to subprime lending, builder new home overstock, rising interest rates, plummeting property values and record foreclosures.
To stop the spread of the virus, social distancing was introduced in early March. Many states implemented stay-at-home orders resulting in the closure of many businesses. This led to more than 36.5 million Americans filing for unemployment benefits. The unemployment rate is expected to exceed 10% throughout the third quarter. These figures are devastating and provide just a partial picture of how the economy has been negatively impacted by this global health crisis. It is likely that we will not understand the full impact of this crisis until well into 2021.
The real estate market again finds itself in the “crosshairs” of a financial crisis with a record number of mortgage delinquencies and people struggling to make rental payments. Thankfully, government intervention has slowed the impact with temporary bans on residential evictions and by providing guidance on mortgage forbearance. Relief has been given for student loans and other consumer debt as well. Small businesses have been offered loans designed to provide a direct incentive to keep their workers on the payroll and their doors open.
One significant difference between 2008 and this crisis is the Federal Reserve’s early intervention by committing nearly $1.45 trillion to purchase U.S. Treasury securities thus allowing mortgage rates to remain historically low. These historically low rates have helped stimulate a refinance boom benefiting a record number of customers. However, the increased volume of refinances presents a challenge for lenders, appraisers and title companies. All of which have been forced to adjust to the current market environment where staff are forced to work remotely while striving to maintain efficiency. In order to deliver a high level of customer satisfaction, lenders must leverage technology to adapt to these new conditions which requires increased communication and ongoing changes to their processes.
While refinances have seen tremendous acceleration and record volume through the summer, the overall real estate market stalled during the early stages of the pandemic. The real estate market was closed in Pennsylvania due to the governor’s decision to allow only essential businesses to stay open. This caused real estate companies to close their offices and CDC guidelines limited their ability to service customers.
Since the real estate market was closed for in-person interactions many homeowners who wished to buy or sell their homes were forced to use virtual online methods to list or show their homes. This was a stark departure from how the industry typically handles a customer looking to buy or sell a home. Many realtors were forced to use technology and online strategies. This limited access helped to slow the results of what is normally a very busy “spring” real estate market. As states moved through the CDC guidelines from “yellow to green,” the real estate market saw significant improvement as there was a pent-up demand for those who were unable to execute a real estate transaction during quarantine. As we move through the summer, and guidelines have relaxed, the real estate market has returned. Mortgage applications for purposes of purchasing a new home have increased and home prices are on the rise in many markets. This is a positive sign that the real estate market is experiencing a comeback despite the ongoing health crisis.
So, the question many have is – what will our new normal look like after COVID-19? We truly don’t know the full impact of this crisis, but certainly our schools, churches, businesses, sporting events, social gatherings and healthcare are forever impacted. Our home lives have significantly been altered and there are going to be many changes to the way we live and interact going forward. This pandemic has accelerated our use of technology and online tools (Zoom calls, WebEx meetings and Virtual Home showings) and is likely to continue to impact the way we buy products and services in the future.
For most people, their home is the largest investment they will make in their lifetime and the real estate industry isn’t immune to these changes. How consumers buy and sell real estate will continue to be impacted. For those in the market, it is very important to have a bank or lending institution that has strong online capabilities. Despite the ongoing uncertainty, interest rates are at historic lows. For those in the market to purchase or refinance a home, some positive things could come out of this pandemic. Contact a Univest Home Loan consultant at 877-723-5571 or firstname.lastname@example.org to learn more about what we can do for you in these challenging times.
Univest Bank and Trust Co. is an Equal Housing Lender. NMLS #415882