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Economic Impacts (Covid-19)

Covid-19 is having a major impact on global financial markets and is impacting the U.S Real Estate market. The coronavirus impact is widespread in the real estate sector; specifically on U.S. mortgage rates, which hit an all-time low in early March, “with the average rate of the 30 year fixed-rate mortgage dropping a staggering 3.29%.” These rates are plummeting, and according to CNBC, they could fall below zero percent. (Sanfilippo, 2020) Along with declining mortgage rates, the real estate market has slowed down exponentially due to a lack of international buyers. Chinese buyers in specific have been the most important source of foreign demand for real estate in the United States. However, due to COVID-19, and its travel restrictions, flight cancellations and required quarantines and self-isolations, has caused the United States real estate economy to drop 56% in spending for Chinese buyers. (Sanfilippo, 2020)

The small positive in the real estate mortgage sector is that some people are using these record low interest rates to refinance their mortgages and pay down their loans even faster. Refinancing mortgages is expected to increase in 2020 by roughly $400 billion to $1.4 trillion. Lower mortgage rates are not always a good sign, and result in price spikes in property valuations. (Sanfilippo, 2020)

The coronavirus has created uncertainty, which in a real estate market, forms volatility, which has impacted interest rates. Another issue regarding China and real estate is its worldwide supply chain dominance. Due to the coronavirus, builders are experiencing longer than usual waits to get the supplies they need from China to start building. (Sanfilippo, 2020) Brokers, renters, and landlords are coming to the reality of the Covid-19 impact as renters are increasing calls for federal assistance. According to Bloomberg, new lease agreements in New York “fell an astounding 38% year over year in March, the second biggest downward swing in 11 years.” (Nelson, 2020)

Due to inactive lease signings, realtors have had no choice but to increase rent prices. March leases that were signed “saw a 9% increase in studio apartments, and a 4.4% increase in one-bedrooms”. (Nelson, 2020) Nationwide data from apartment list confirms this upward trend, with year over year rents increasing 1.9%. (Nelson, 2020) In the aftermath of the first month following Covid-19, it was revealed that Americans were having significant trouble affording their current rents. A recent survey, which consisted of 13.4 million housing units, indicated that 31% of these renters couldn’t pay their rent on time, an increase in 20% before this pandemic hit the country. (Nelson, 2020)

This unique situation has led landlords and their tenants to find rare common ground. Some landlords are allowing tenants to “sprinkle” their current rental payments into later months, also known as rent deferral, while others are accepting partial rent payments. Landlords have been forced to think outside of the box in order to get some sort of rental payment on time. Some landlords have suggested using renter’s security deposits in order to pay for their tenant’s current rent, or last months rent if it was collected upfront. Other strategies include waiving late fees or move-out fees so tenants don’t feel overburdened with payments. Landlords who are impacted have been applying for lines of credit or Small Business Administration (SBA) Disaster loans. Banks are also providing credit lines increases, and waiving any fees to help landlords during the Covid-19 pandemic. (Born, 2020) Without rent checks coming in, landlords will struggle to pay maintenance and operation costs, mortgage payments on their properties, as well as property taxes. Luckily, many property owners are implementing mortgage forbearance, which allows payment reduction or deferral on mortgages for as long as a year if they lost income due to the coronavirus fallout. (Sisson, 2020)

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