COVID-19 has led to a slowdown in housing market activity in Virginia, although the pause here has not been as great as in many other parts of the country. In April, home sales statewide were down 6.9% compared to last April, and sales declined 3.5% compared to March 2020. However, home prices have continued to rise in most markets in Virginia. In April 2020, the statewide median home sales price was $316,000, up 5.3% over a year ago.
Despite the economic recession which is being fueled by the COVID-19 pandemic, there is no reason to expect home prices to fall in most markets across the state. In local markets where there is a slight downtick in sales prices, the drop is likely to be temporary.
Why don’t we expect the see a drop in home prices?
It is important to remember that the current economic recession is vastly different from the 2008 recession. There are several important reasons why we expect home prices to remain stable—or even to continue rising—over the rest of 2020 and into 2021:
- Many sellers have flexibility on the timing of selling their home (i.e., They don’t have to move “right now”). Therefore, they would rather take their home off the market than accept a lower price. While there are some sellers that have reduced their asking price to attract buyers, it is a relatively small share of sellers. It has been more common for sellers to temporarily remove their home from the market if they expect they will not get (close to) their asking price.
- Both supply and demand in the market are falling during this slowdown. During the 2008 recession, there was an oversupply of housing in many markets as demand was falling, which was one reason prices fell. In the current market, we are seeing both supply and demand fall roughly at the same rates, which means that prices should not take a hit.
- Many Virginians have been impacted by job and income losses during the past few months. However, job losses have been highly concentrated in the Leisure & Hospitality sector (i.e., restaurants, bars, hotels, and travel-related industries). Workers in other sectors, including the Federal Government, Professional & Technical Services, and Finance & Insurance sectors, have been relatively insulated from job losses. Many workers in these sectors have been able to work remotely without interruption to their income. In addition, survey data suggests there are some workers who have seen their financial situations improve during COVID-19 because they have spent less on dining out, child care, commuting, and other work-related expenses. These individuals and families are among the most likely to purchase a home and may feel their personal financial situations are stable enough to continue with those plans, keeping demand relatively strong and prices up.
- A rush of foreclosures and short sales drove prices down during the 2008 recession, but there is no evidence of a similar trend playing out this time around. The Federal government has directed lenders to provide mortgage relief to homeowners impacted by COVID-19. In addition, expanded unemployment benefits and direct stimulus payments help individuals and families stabilize their incomes during the downturn. Therefore, we should not expect to see significant numbers of foreclosures and short sales this year, which will help keep home prices from falling.
The year 2020 will be a strange year for the housing market. While we expect the number of sales to be down this spring compared to last year, prices should remain stable—or even rise slightly—throughout the rest of the year.