Effects of Covid-19 on Real Estate in SW Florida:

The most frequent question, by far, I have been asked as of late is “what effect will the Covid-19 pandemic have on the real estate market here in SW Florida (short term & long)?”.  Although this is currently a moving target, each week that goes by gives us a better understanding of what is actually happening now and insight into what may happen in the future.

The Sky is not falling!

The idea of another real estate bust like that of the late 2000’s is a valid concern; and one reality that most people hope they never see again in their lifetimes. That being said, what are the chances of the Covid-19 virus pandemic being the trigger for a large scale real estate bust?  To answer that, we need look at what is different between now and then.  I think there is good evidence to suggest the worst will not happen, and here is why.

Factors that are different from 12 years ago:

Home Values:
  • In the boom years right before the big bust, we here in SW Florida experienced a huge run-up in home prices. This went on for a few years and price values were increasing at such a rate that you could almost feel the “bubble” forming (although most people ignored this).
  • In the past two years, here in SW Florida, priced have been very “flat” only increasing at a very modest rate, if that. Normal modest appreciation means NO pricing “bubble”.  No “bubble” = no “pop”!
Mortgage Lending and Sub Prime:
  • In the pre-bust years, just about anyone could get a mortgage loan.  That is not an over statement.  There were so many loan programs available in the market, some sub-prime, interest only, negative amortization, no income verification, etc. Any experienced loan officer could find a loan program that would work for ANY situation.
  • Mortgage lending is completely different today.  Now, almost everything is full documentation. Sub-prime is gone, negative amortization is gone, etc. People who qualify for a mortgage loan today are much more likely to be able to afford the home going forward.
New Home Construction on Steroids:
  • In the mid 2000’s, here in SW Florida, we saw new home construction at an all time high. These were homes being built many times without any end user in mind. Thousands of “spec” homes were built every month, and out of the ones that did have a contracted buyer, many of those buyers never actually intended to occupy the property. For a few thousand dollars, they would have a home build, then once completed, sell it for a profit on the day of closing.  Sustainable??  Once the market turned, these houses got “dumped” on the market vastly increasing the number of homes for sale. With super high supply and low demand, home values fell crashing down.
  • Today, we don’t have those issues in the building industry, partially because of responsible building, and partially because of the changes in the lending industry.  Because of this, there will be no “flood” of homes for sale hitting the market any time soon.

Where does that leave us today?

We are currently seeing some buyers and sellers, who do not need or want to purchase or sell homes today, leave the market temporarily. What you are left with are buyers and sellers who still want and/or need to buy and sell.  These are people with sufficient motivation to move forward with their plan.

What are we seeing now?

We keep an eye on a couple of statistics to get an idea of the current real estate market and how it is moving as well as looking for noticeable trends.  Remember that supply and demand dictate how prices trend (either up, down or stable).  “New listings” are obviously sellers who have entered the market and told us they are motivated sellers.  this adds to our inventory of homes on the market today.  “Pending” contracts are actually motivated buyers who have taken beginning steps to purchase a home. This is a measure of demand. Prices fall when supply increases and/or if demand falls.

In the past few week, we have see the number of new listings and the number of new pending sales be very very balanced.  These numbers have been very similar and consistent for the past several weeks! This tells us that supply and demand continue to be balanced.

Conclusion:

The number of new listings and new pending contracts have continued to remain similar and consistent for the past few weeks. Because of the continued balance between supply and demand home prices are remaining stable (for now).

The actual number of closed sales are expected to be lower for the next few months, but we are not sure to what extent will be the decrease.

The big questions is: when the economies open back up, will that pent-up demand to sell and buy come back with it, or will that take some time. We will have to wait and see.