In early March, the pandemic placed U.S. real estate transactions on hold. A few weeks later, Realtor.com created its weekly Housing Recovery Index, to track changes since Covid-19 gained a foothold. The name of the index itself suggests confidence in the market’s rebound.

According to the recovery index, home sales took a turn upward in May. Traditionally, we’d expect a May home sales boost for real estate markets across the United States — the time when homes sell more quickly than in any other month, and command the highest prices. What about June? The buyer interest continued, as noted in a widely cited, upbeat report from the U.S. Commerce Department that focused on a rally in new home sales. Still, it wasn’t a normal June. The rally has included an unusual kind of impetus: a desire for migration from cities to suburbs, as people seek shelter from the virus.

By early July, USA Today reported what we at Deeds.com already knew: among regular folks, including young people, hopeful home buyers are struggling to meet strict criteria presented to them by nervous lenders.

U.S. workers have been unsettled by unemployment — particularly so in California, Pennsylvania, and New York, as reported by MarketWatch. In late July, the United States reported its 18th consecutive week with a million-plus initial jobless claims. By this time nearly 32 million people were receiving unemployment payments. Most people in such circumstances cannot buy houses. In this context, CoreLogic forecasts a 6.6% decline in home values from this spring to May 2021, as financial hardships inevitably unfold.

Low-Interest Paradox

For now, the market looks strong for housing — although too many people are still sidelined, as they were before the advent of Covid-19.

And even with mortgage rates down to enticing lows — 30-year fixed rates can now be had for 3% — available homes are still limited, competitive, and pricey. Why this paradox? Low interest rates do help buyers, yet can also drive up home prices along with demand.

And despite the rebound, we are seeing fewer homes overall being purchased this year. Consider the recent reports by Realtor.com itself, which predicts existing home sales will be about 15% down in 2020. Some of the toughest competition for the comparatively few homes on the market can be seen in the Boston, Dallas, and Washington, D.C. markets, where buyers must prepare to outbid others, pay above-market prices, and cover closing costs.

In 2021, the plot could thicken. Lenders may find themselves sitting on inventories of default homes. For now, the government has bought mortgage borrowers time.

Propping Up Homeownership: The Foreclosure Freeze

U.S. business slowdowns have led to some alarming predictions. For example, we could see more than 20 million people evicted from their current homes this year. For those with federal mortgages, the government has stepped in with a tourniquet: current law has suspended foreclosure for homeowners with loans backed by Freddie Mac, Fannie Mae, the VA and the FHA, and other federal agencies. Non-federal foreclosure relief polices vary.

Forbearance under the federal Coronavirus Aid, Relief and Economic Security Act doesn’t hinge on being impacted directly by Covid-19 — if you need forbearance during the time of the pandemic, you are eligible. But homeowners must take the time to communicate with their lenders to arrange for suspensions. It’s not automatic.

Be sure to find out how you’ll need deal with the accumulated debt when the suspension is over. Lenders cannot force a single, lump-sum repayment when the forbearance period runs out. Additionally, the CARES Act bars extra interest charges on the accumulated debt.

Still, your interest might change in certain situations — for example, if the term of the loan is extended. Ask if it is. Are you getting a full payment deferral? Be sure ask if you’re expected to make interest payments during the suspension period, or contribute escrow advances. And be clear on how you’re going to be dealing with the lender’s catch-up provisions after forbearance ends.

Forbearance involves amending your loan documents. Lenders may agree to modify and extend the lifetime of loans, making repayment easier for some, but homeowners need to take the time needed to understand their updated rights and obligations. After digging into the details, some owners may decide to use the mortgage forbearance period to get their homes ready for the market, or to embark on a short sale or a deed in lieu of foreclosure.

Commercial Real Estate Dramatically Cut — Impacting Home Buying, Too

In late July, Reuters reported that U.S. office space will shrink dramatically as corporations seek ways to shave costs. Companies are already getting used to having many of their employees work from home.

The flight from offices has yet to play out through the commercial mortgaged-backed stocks. The Federal Reserve has assisted the sector, buying mortgage-backed securities. And most U.S. office leases span years.

But as time passes, commercial real estate will inevitably shrink. Energy corporations, financial services, furniture stores, and a host of other mainstays of the brick-and-mortar world are making a seismic shift to remote employment and ecommerce. Education, legal services, and even trial work are following suit.

Research from Green Street Advisors projects that some 15% of U.S. office workers will wind up keeping their remote positions for good — even after the emergence of a vaccine for Covid-19. And Morgan Stanley has predicted that work-from-home policies will mean:

• New York City offices will be 10%-12% vacant within five years (from just under 9% today).
• San Francisco offices could reach a 9% vacancy level (from just under 6% today).

This portends a shift in the residential real estate market, too. White-collar employees will, in the future, have greater leeway to buy homes in more affordable markets, away from the pricey coastal cities.

Granted, not all companies and staffers are sold on the work-from-home economy. But even the most Zoom-averse expect a hybrid future, in which remote work becomes normal, punctuated with carefully spaced physical meetings.

How Will We Fare From Here?

Millennials are now in their late 20s and their 30s. A lot of them are looking for homes, and residential real estate stands to benefit. That said, many potential homeowners are small business owners, creatives and solopreneurs. Some are educators; others are refugees from the service industries and retail worlds, where multiple rounds of shutdowns have taken heavy financial tolls. Financial reporters may have discounted the vital growth potential offered by these groups. If their members become increasingly sidelined and cash-strapped, watch for an even more serious slowdown in the market than what we’re already expecting.

Keeping tabs on real estate’s performance through the coming months and years, Deeds.com will continue to examine how people and the market cope with an unprecedented kind of volatility.

Supporting Resources

Chip Cutter, Companies Start to Think Remote Work Isn’t So Great After All, The Wall Street Journal (July 24, 2020).

George Ratiu, Drop in New Listings Projected to Lead to 15 Percent Loss in Home Sales, Realtor.com (June 18, 2020).

Jeff Ostrowski, 6 Mortgage and Real Estate Trends for the Third Quarter of 2020, Bankrate (July 20, 2020).

Natalie Campisi, Everything You Should Know About Mortgage Forbearance, Bankrate (April 27, 2020).

Photo credit (via Unsplash): Tina Witherspoon