Right now, the United States (and the rest of the world) is facing many uncertainties. In fact, in a way, we have entered uncharted territory with the novel coronavirus and COVID-19. Though there’s no way to accurately predict its effect on the US real estate market, there are a few possibilities that all investors should consider.
Economic Volatility
The evidence that COVID-19 has negatively impacted the economy is everywhere. A state of emergency declared nationwide on March 13, falling mortgage rates, more than $200 trillion in federal aid to individuals and companies, and more will all take a toll on the nation. Though the stock market is struggling, there’s no real correlation between the stock market and real estate; people will always need somewhere to live, which affords real estate investing some protections that other investments just don’t have.
Comparison to the 2008 Financial Crisis
The coronavirus and the catalyst responsible for the 2008 financial crisis are completely different scenarios. In fact, the 2008 crisis was a direct result of problems that were occurring (and ongoing) in the subprime lending market, including the selling of subprime mortgages for more than their value. This led to numerous mortgages defaulting in quick succession – and, as a result, bankrupted investors. The stock market isn’t affecting real estate right now; rather, uncertainty regarding the state of the economy following coronavirus certainly is. With people out of jobs and relying on payments from the federal government to get by, no one is entirely sure how well the market will recover.
What Could Help the Real Estate Market?
Right now, the best thing that could happen for real estate investors and the American economy as it relates to real estate is a freeze on mortgage payments and rents. Though this certainly is extreme, it is important for investors to consider two scenarios. First, they could temporarily freeze rents while most of their tenants are out of work, only resuming rent payments once those tenants have been back to work long enough to afford the rent. The other option involves processing evictions for tenants who otherwise cannot pay. In many states, courts are not processing evictions, which means landlords can’t legally evict until the courts begin processing the evictions again – and for most, there’s no specific date in mind.
Deferred Mortgage Payments
When tenants are unable to pay their rent, though, property owners who rely on that rent to pay their mortgages find themselves in trouble. That’s exactly why freezes on mortgage payments or three-month deferments (for now) might be the best way to help both the average American worker and the average multifamily property real estate investor get over the hurdles imposed by the virus.
At the end of the day, there’s no one solution that will work for every American and every real estate investor. Some states are trying one route while others are trying something completely different. These are unprecedented times, and for the time being, our focus should remain on staying healthy and watching the market closely for changes that may directly affect us in the future.
