According to Market Watch, the real estate market was doing well in 2020. March was a strong month for housing until the seriousness of the coronavirus pandemic became clearer. Since then, the number of newly listed properties has fallen by over a third.
Airbnb appears on the verge of collapse. At the very least, many investors who bought properties to rent out for Airbnb are finding themselves without customers and quickly approaching insolvency.
With the market in flux, many are asking, "Should I buy a house now?" Read on for an overview of the reasons some say to invest now and others say to wait.
Why Should I Buy a House Now (Or Not)
Warren Buffet is famous for his advice that we should be "fearful when others are greedy and greedy when others are fearful." A savvy buyer knows to sit up and take notice when perhaps the most successful investor in history gives advice.
Warren Buffet's advice is based on the idea that markets tend to go up and down. As the market goes further and further down, you can buy more and more properties for the same amount of money. Or, if you're buying a house just for your own dwelling, then a fallen market means you can buy a bigger and better house for the same amount of money.
Buffet's philosophy says that the market will eventually come back up, so it's better to buy when the market reaches its absolute bottom. Of course, as he alludes to, many people are afraid to invest in those moments. They reason, very naturally, that if the market has gone down so far, maybe it will continue to go down.
All of this points to the same conclusion. Is now a good time to buy a home? That depends entirely on if the market has already bottomed out, or if it's going to fall some more before finally recovering.
That question of timing is everything. So, how can we figure out if the real estate market has already finished falling, or if it's going to fall some more?
The Role of the Pandemic
As mentioned before, the real estate market was strong until the pandemic hit. That was great for homeowners who wanted to see their homes' value continue to rise. It's not quite so great for those who were looking to buy a home, as they probably found that the available houses were quite expensive.
The pandemic has led to an incredibly fast shift in the market. Million of people have lost their jobs faster than ever before. In fact, we have observed jobless claims filed by month inflate over seven times higher than they've been in the whole history of United States unemployment benefits.
While it's true that the Great Depression, at its peak, put more people out of work, but the Great Depression took several years to lead up to that level of unemployment. The whole economic effect (so far) of the pandemic has occurred in just a few weeks.
Without people working, fewer goods and services are produced. That means there's less for everyone to enjoy, meaning that the standard of living could eventually begin to fall. On top of that, people out of work are not very likely to be buying things.
The end result is not surprising. People aren't looking to move out of their houses the way they were just a few weeks ago. And people aren't looking to move into new houses right now, either.
But that's not the end of the story. We can expect this trend to continue, and maybe even to accelerate. The bottom of the real estate downturn is connected to the peak of the pandemic.
The more people get sick, the more they can't work. On top of that, we have to be extra careful and potentially stay home to avoid infecting people. In other words, if you want to know "When should I buy a home," then the other question you should be asking is, "When will the pandemic peak, and when will it begin to go down?"
When Will the Pandemic Peak?
There are two kinds of peaks to consider. First, the peak this year. Second, the peak over several years.
The Spanish Flu lasted through three separate periods over multiple years. The peak of one season was not the peak of the entire pandemic.
In the case of COVID-19, we can expect a peak in the near future before cases begin to go down. That could be the peak of one season. On the other hand, who knows what will happen next year?
Fortunately, it's simpler than that. With modern technology, we only have to consider peaks that occur before the development of a vaccine. On the long end, a coronavirus vaccine is estimated to take 18 months, probably less.
So, let's focus on just this season. We're in quarantine, the rate of growth is dropping, and soon the total number of cases should start to go down.
But what happens when we leave quarantine?
How Can the Economy Rebound Safely?
The graph of home values may go up and down several times if quarantines are issued and closed multiple times. Right now, there's been a bit of a dip in the housing market, so you might think right now is the best time to buy.
If this is the most extreme effect of the pandemic, then that reasoning would be correct. On the other hand, someone might buy a house now, pat themselves on the back when they see the market go up a little, and then end up in a bad place because the market sinks down further than before.
We need a plan that allows the economy to function, but without causing massive spread of the virus. Obviously, we want to protect people from the health consequences. But even speaking merely economically, if our economic plan leads to incredible viral spread, then we'll presumably have to shut down harder and longer.
To make sure that the dip in the market doesn't turn into only the first in many to come, the economic plan will take health concerns into consideration. Then again, it may fail. By understanding how our economic plan will affect viral spread, we can predict if the market will have more dips or not.
Will the Economic Plan Lead to Rebounds?
The economic plan is still in development, but we should start to see the details soon. If you think the plan will successfully keep infections down, then the time to invest is before the plan kicks into effect.
On the other hand, if you think the plan will fail, then the virus will spread quickly. Recent data out of New York City shows that perhaps 20% of the entire city's population has been infected, 10 times the official case count. This shows that the virus spreads more easily than we expected.
If the economic plan looks like it will allow infections, then they will spread more quickly than you might think. Within a few weeks, we'll have many more cases than in the first infection bubble. Presumably, at that point, the demand for housing will go very far down again.
Eventually, we'll restart the economy again, and if that's the last crash, then that will be the perfect time to buy a home. Or, if there are more crashes to come, then it would be best to wait. The last dip, whenever that happens, will be the best time to invest.
Other Factors to Consider
Information from the National Association of Realtors data tells us that before the pandemic brought down demand, there was actually a housing shortage.
This means that the housing demand that has been temporarily curbed won't just snap back to a normal position. Instead, it will snap back to an even higher value, because people are desperate for homes.
This doesn't tell us when exactly to invest. We don't know when the pandemic will cool down and demand will snap back.
However, what it does tell us is that, when that moment comes, owning a home will be an extremely profitable investment. If you can manage to buy a house right before demands snaps back, your home value will go through the roof!
Use the Best Information to Buy Your Real Estate at the Right Time
"Should I buy a house now?" you might ask. Whether it be sooner or later, the right time to buy a house or invest in real estate will come again. Understanding the way the pandemic functions can help you know when that right moment will come.
When you're ready to buy, make sure you have all the best information to help inform your selection. Our search tool allows you to find the value of any home by entering its address in for analysis. You can also search for available homes to buy within a given area.
To keep up to date on all the latest news in real estate trends, the pandemic, and more, check out our other pages.