As thousands across the globe struggle with the impacts of Coronavirus (COVID-19), there are few industries left untouched. The U.S. real estate market is among many that have implemented changes, navigated a new normal, and worked to find solutions in this ever-changing COVID-19 climate. As investors and home buyers are re-evaluating and sellers remain unsure of what’s next, it’s important to understand how the Coronavirus has impacted the industry, but also how real estate professionals are working to mitigate the impacts.
Increased Interest Rates
As the stock market continues to fluctuate and unemployment claims rise due to layoffs and furloughs, interest rates have been ticking upwards. As interest rates affect buying power, this has the potential to impact the upcoming spring housing market which is typically the busiest time of year for real estate professionals. Lindsey Mahoney, Realtor with The Rigali Group With Danberry Realtors in Toledo, Ohio, says buyers are “more curious about their interest rates and how that will affect them.”
One of the most important keys to securing the best rate possible is to begin working with a lender now. Working with a seasoned and professional mortgage lender, as well providing all necessary documentation to the lender, allows them to lock-in a great rate when the rates dip again. Request that your lender stay in daily contact with you to apprise you of the daily rates and how it affects your buying power.
Decreased Buyers In The Market
According to a National Association of Realtors March 2020 survey, nearly half of Realtors responded that “home buyer interest has decreased due to the Coronavirus outbreak.” Decreased buyer activity can be attributed to economic fears, furloughs, and social distancing. However, there are methods that real estate professionals can implement to calm buyer fears and promote a safe environment:
- At the direction of NAR, provide virtual open houses rather than in-person
- Do not drive clients to showings per NAR Coronavirus safety guidelines
- Disinfect all surfaces- doors, handles, lockboxes, countertops, etc before and after every showing
- Provide disposable gloves and masks for clients to utilize during showings
- Offer virtual tours, electronic signing, wire transfers, etc.
Tenants Unable To Pay Rent
As furloughs and layoffs continue, many hitting hourly and seasonal workers, landlords may find themselves in a situation with a tenant unable to pay rent. Lindsey Mahoney who also owns a rental property in Toledo says that while her tenants have not contacted her yet regarding rent, she has procedures in place to work with them. Mahoney suggests “giving a month free” to tenants and then “come up with a solution.” If landlords can’t provide a free month, she suggests coming up with a solution where tenants just pay the mortgage amount- rather than any increased cash flow amount. Other alternatives landlords should consider:
- Remove late penalty fees
- Allow tenants to pay in increments
- Discuss delaying payments
- Any changes to the lease should be put into writing
Significantly Increased Airbnb Cancellation Rates
Due to travel bans, social distancing, and fear of the pandemic spreading, many are choosing to stay at home rather than travel. For investors like Sarah Karakaian, co-host of Thanks for Visiting, a short-term rental podcast, who owns six Airbnbs and manages 20 others in the Columbus, Ohio area, this has caused a major disruption in her livelihood. According to Sarah, “Our Airbnb business has absolutely been impacted. We’ve seen about a 90% cancellation rate between March 13th and April 15th, 2020. Our occupancy rate went from 80% to 10%.” As Airbnb issued a blanket refund policy to travelers, many hosts are concerned about what is next for their investment. Karakaian says, “Because Airbnb issued a blanket refund policy that absolutely favors the travelers, I’m thinking travelers will now trust Airbnb more than ever. When the sun comes out and everyone starts traveling again, I believe travelers will look to Airbnb to help them book their stay knowing that Airbnb had their back when times were tough. That would be excellent for hosts in the future.”
If hosts are looking to recoup lost revenue, Karakaian suggests:
- Updating cleaning procedures and informing guests
- Include a picture of the cleaning team and cleaning products so guests can feel assured
- Caption photos with what you are doing to keep the space sanitary
- Diversify your advertising outside of Airbnb. Make use of social media, VRBO, Facebook, etc.
- Consider providing cleaning materials for guests to utilize during their stay
- Offer discounted prices or incentives
Disrupted Business-as-Usual for Banks
As many banks are locking their doors, they are having to get creative in meeting the needs of consumers and the real estate industry, while keeping people safe and healthy. Natalie Bartholomew, Chief Administrative Officer at Grand Savings Bank in Northwest Arkansas and the voice behind The Girl Banker says, “We are in uncharted territory and we’ve been preparing for the impending threat of the coronavirus for several weeks. We closed all branch lobbies on March 17th.” Even as the pandemic continues to sweep across the globe, the banking world doesn’t stop. When asked how COVID-19 might affect the mortgage loan process, Bartholomew says “Depending on the impact to staffing, third parties such as appraisers, title companies, etc., delays are highly likely as this situation progresses.” She assures borrowers that lenders are working to do their part to help: “We have created a payment deferral program for our consumer installment borrowers and in-house home mortgage borrowers and are willing to revisit as the situation progresses.”
The situation with COVID-19 is fluid and changes daily, if not hourly. As more shelter-in-place mandates are issued, the impact on the real estate industry may continue to grow. And while the unknown may be overwhelming, it’s important to remember whether you’re buying, selling or investing that the real estate industry is prepared. Blair Ballin, a real estate agent with Conway Real Estate in Phoenix says “We will get through this. Yes, there will be losses (employment) but that does not mean the real estate market will crash.”