Has COVID sparked a buyer’s market? Think again.
There is a great divide in our region’s real estate market. The divide between the home buyer’s and home seller’s perception of the market. Buyers see the coronavirus pandemic and its economic fall out as a potential opportunity to buy a home at a discount. Sellers (so far) are not seeing it the same way.
Some buyers new to the market are expecting a bargain. They want to lead with offers asking for a steep price discount. They are expecting to take advantage of a market where they perceive other buyers have disappeared because of the economy.
Today, sellers are anxious but not desperate. Sellers not on the market yet are taking a wait and see approach. They have delayed placing their home on the market and not expecting to have to discount price. Sellers on the market are still reluctant to lower their price, preferring to wait and see what happens in the near term before making a decision that may impact them long term.
So what is our current real estate reality?
The current market favors the sellers. Buyers have not disappeared but sellers have. In the Delco, Montco, and Chesco markets there is a huge difference in homes listed in 2020 compared to 2019 (see chart), yet only a slight drop in homes sold (buyers still active). This has created an even larger home shortage.
Buyers today remember the real estate bubble of the “Great Recession” in 07-09 and expect to find falling real estate prices. At that time a high volume of subprime mortgages (mortgages to less than good credit borrowers) started to become delinquent. The banking industry’s gamble on those mortgages also fueled real estate’s decline. The market became flush with homes for sale. Today’s reality is different. Homeowners have equity, options, and patience.
Prior to the pandemic the seller’s market was fueled by a home inventory shortage. The pandemic’s impact has been minimal to the number of buyers looking for a home. The number of homes on the market has dropped significantly when compared to this time last year. So we still have a lot of buyers, but even less homes on the market than usual to buy. Buyers looking for discounts are going to be disappointed.
Overall we are in uncharted territory. This is the reality today. That may change in the future, and if it does, it is most likely not going to happen over night. Today, unlike the Great Recession, homeowners have equity, options, and can just choose to stay put instead of selling. A prolonged economic hit caused by the pandemic could eventually erode homeowner’s equity and options. This would increase inventory of homes available and soften prices. This won’t be something buyers should look forward to because the economic impact will not just hit sellers, but everyone.
by Michael Skay