It's been over four months since COVID-19 took hold in the U.S., and since then, it's had a huge impact on the economy as a whole. And that extends to the real estate market.
Of course, some impacts of the pandemic are immediately obvious: Homeowners have their mortgages in forbearance, landlords are losing out on rent due to eviction bans, and commercial tenants are falling behind on their own obligations in the absence of steady revenue. It's no wonder, then, that in a June survey of 344 real estate investors conducted by MyHouseDeals, over 40% have a negative outlook on the market for the next six to 12 months. Here are some of the reasons why.
1. Access to buyers
Many Americans are hurting financially right now, which means they're not in a position to buy homes. The same holds true for workers who may be grappling with income loss or insecurity. A lack of buyers could impact house flippers in a very big way, as lower demand could drive home prices down in certain areas (though it's worth noting that in some parts of the country, limited inventory is spurring bidding wars left and right, so there's a flipside here, too). Furthermore, commercial buyers may be hard to come by as they weigh their options and, in some cases, opt to ride out the pandemic before tying up more money.
2. Access to capital
Lenders aren't rushing to let investors borrow money at a time when so many people's finances are so precarious, and difficulties accessing investment funds could hurt those who make a living in the real estate market in the near term. Granted, access to capital may not be an issue for huge real estate companies, but for individual investors, it's more of a concern.
3. Less profit potential
Some investors worry about limited profits in the wake of COVID-19. If there's less access to buyers, it stands to reason that profits could take a hit. But actually, this trend may not come to be. In fact, Redfin (NASDAQ: RDFN) reports that home prices were up 2.8% year over year in June on a national level.
4. Access to inventory
Though home prices haven't yet been hurt by the COVID-19 crisis, inventory has. According to Redfin, in May 2020, the number of homes for sale was down 18.9% compared to May 2019. And for real estate investors, limited inventory means limited opportunity.
5. Access to contractors
Thanks to the CARES Act, workers on unemployment were entitled to an extra $600 a week on top of their regular benefit -- and that boost has driven a lot of low to moderate earners to stay out of the workforce, as it's been more lucrative than going in to work and risking their health and collecting a paycheck. That $600 weekly boost is set to expire at the end of July, but lawmakers have been pushing to extend it, especially given the recent surge of COVID-19 cases nationwide. If that boost becomes available for the remainder of the year, finding contractors to come out and work could prove challenging.
Real estate investors may have some challenges ahead of them in light of the COVID-19 crisis. Knowing what to brace for could help make the next six to 12 months easier to bear.