During spring, homebuyers are out and about looking to get the best deal on their next home purchase. This has been the case for a long time, as after a long winter, home prices would become more affordable and upcoming homeowners are excited about new spring deals. However, this year is quite different due to the economic recession caused by the COVID-19 virus.
COVID-19’s Effect on the US Economy
As COVID-19 continues to infect more people in the US, the stock market has seen a significant drop in value, and subsequently, the economy, in general, is taking a hit as major events are being postponed, or canceled. However, if you’re already in the market looking for a home, what effects could this situation have on your ability to purchase a new home? Let’s look into it in more detail.
What does previous pandemic data say about the housing market valuation?
Historically speaking, an economic recession does not affect housing market prices drastically. Moreover, it has been stated in a study, that, during previous pandemics, even though home sales stayed low, the price of homes stayed fairly constant throughout the pandemic. That is, with fewer deals taking place, the market did not have an opportunity to become volatile, therefore, home prices remained steady with fewer sales taking place, in essence, putting the housing market on a pause.
What drives mortgage rates down?
However, the effects of the coronavirus are not to be ignored. As of now, mortgage prices have started to become lower. To explain further, it’s like a domino effect. First, the Federal Reserve has announced a second emergency interest cut, which has led to Treasury bonds yielding 0 percent. Additionally, with the stock market crash, the interest rates have been affected as well. From there, investors start to associate increased risk with the stock market and purchase bonds instead. Next, the increase in demand for the bonds, prices pick up as well leading to a much lower interest payment, that is, yield. Finally, once bond yields are lower, mortgage rates start to decrease as well.
What effect will the coronavirus have on the US housing market and economy?
At the start of the year, the housing market was set up to be a perfect playground for a competitive fight between investors, as the demand was high and the mortgage rates quite low. Moreover, with the prolonged effect coronavirus will have on the US economy, namely the housing market, with an induced recession at our hands, we will be looking at a much lower market demand forhome purchases, which will drive more competitive prices for potential buyers. However, as investors, do not expect home prices to go down any time soon, but, for the moment, given the situation with the coronavirus and the housing market setup from years before, it is likely that the pace in which housing prices increase will be significantly slowed.
Empowered with this information, plan your investments smartly and try to get the best deal for your spring home purchase. But, most importantly of all, stay safe out there and keep yourself isolated from COVID-19.
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