With more than 90,000 confirmed cases of the Coronavirus (COVID-19) worldwide, there are growing concerns about the impact on the economy, generally, and on the housing market, specifically. (It is important to note that as of today there are no confirmed cases of Coronavirus in Virginia.) While conditions are changing rapidly as more cases are confirmed and as central banks step in, here are a few things we know about how the Coronavirus that could affect the housing market here in the Commonwealth:
- The economic fundamentals that support a healthy housing market remain strong in Virginia, despite concerns around the economic impact of the Coronavirus. Job growth has been positive, unemployment is low and demand for housing is still strong. The housing market is well-positioned to handle a short-term impact on the economy.
- It is possible that losses in the stock market could dampen demand among high-income households, who tend to have more wealth in the stock market and may have been planning to use those resources for a home purchase. However, this, again, is likely a short-term phenomenon that will correct itself later this year.
- If people are concerned about the virus, we might see a modest slowdown in traffic and home sales transactions in the weeks to come. However, if this does occur, it will most likely be of very short duration and the lost sales this month will likely be made up later in the year.
- In a rare move, the Fed cut interest rates this week in an effort to make it less expensive for businesses and consumers to borrow and, perhaps more importantly, to bolster consumer confidence as a way to stopgap a potential economic downturn.
- The drop in the Fed rate will not move mortgage rates in the short-term, though there is an association over the longer-term. Lower mortgage rates are a positive; however, because mortgage rates were already low, a drop in rates will not be the primary factor enticing people to buy a home. More inventory is more important for that (see below).
- In anticipation of central bank activity, the yield on the benchmark 10-year U.S. Treasury note hit an all-time low, bringing mortgage rates down this week, as well. The result has been a spike in refinancing activity, though no observable impact on home purchase activity.
- More refinancing activity could lead to even lower housing inventories. Right now, a lack of supply continues to be the biggest constraint on the housing market, not a slowdown in demand.
- If the spread of the Coronavirus continues to impact travel, supply chains, and day-to-day lives, it is possible for the U.S. economy to move toward a recession. Virginia tends to be relatively more insulated from a recession than other states are, given the strong presence of the federal government and the diversified economy in the Commonwealth.
The Coronavirus should not lead to panic—the economy and the housing market in Virginia are on solid footing. Best advice: take care of yourself, wash your hands, don’t go to work if you feel sick, and continue to pay attention to the fundamentals that drive your local market.