If you’re thinking of selling your house, you need to know where real estate prices are heading. With unemployment rising and coronavirus stalling the U.S. economy, it’s reasonable to expect some pricing volatility and, most likely, depreciation.
But trends in housing prices are complicated. Understanding the factors that influence real estate asset prices will help you price your house to sell. Read on to find out how to properly set expectations of what your house is worth and avoid disappointment.
Should you expect lower prices?
During a downturn, demand for goods and services tends to fall. This causes prices to go down, including house prices.
If the economy takes a sustained turn toward recession, it’s wise to expect lower property values. As a seller, this means accepting less than you might have expected before the start of the pandemic.
But nothing in the future is guaranteed. If you’re selling your house during coronavirus, you should prepare yourself for any outcome. A house is only worth what someone is willing to pay for it. And at the moment, no one is quite sure what the right price is for any house.
The following considerations will help give you an idea what to expect from home prices.
1. Housing supply and demand
Housing prices are largely determined by the law of supply and demand. The interplay of these market forces creates buyer’s and seller’s markets.
However, even when buyer demand is low, if there aren’t a lot of houses on the market, prices tend to stay put. One of the unique characteristics of the coronavirus slowdown is that both supply and demand are repressed.
It’s unclear how that will change if and when the virus is better contained. Until then, prices may be a bit more stable than you expect. But even if average asking prices stay up, fewer buyers means you’ll have less leverage in a price negotiation.
2. Income and wealth
Lower income due to joblessness and reduced wealth due to stock market depreciation mean fewer people have money to buy houses. This generates lower demand for houses and fewer buyers overall.
The government stimulus package offsets some of this impact, but a long spell of high unemployment will inevitably drag housing prices lower. A quicker rebound will create minimal impact on prices. Follow the money.
3. Labor and construction costs
In a traditional market downturn, the costs of labor and construction go down. This makes building a new house or renovating an existing one cheaper.
It’s possible that won’t happen this time around. The stimulus law and expanded unemployment payments may keep some families afloat for a little while.
In the short term, new home construction is paralyzed. If unemployment continues to rise, this will likely drive labor costs down, too. In that case, you may see lower offers on your home.
4. Mortgage rates
Generally speaking, low mortgage rates push housing prices upward.
With the Federal Reserve moving to keep the federal funds rate extremely low, average mortgage rates will likely stay low for the foreseeable future. This should buoy buyer demand and counteract falling house prices.
Sellers should keep tabs on mortgage rates over time. Check 30-year rates frequently.
5. Foreclosures and evictions
Another wild card in residential housing is the number of foreclosed homes hitting the market. As part of the CARES Act, Congress suspended foreclosures and evictions temporarily. This means that residents behind on their mortgage (or rent) cannot be forced to leave their property. In effect, it also makes it harder for landlords to sell their properties.
Foreclosed properties typically need a lot of work, and sell for less than the average house price. This tends to be true of rental properties, as well.
These lower priced sales bring down the median and average sale price, which has a net negative effect on house sale comparables. Therefore, the more foreclosures there are, the lower prices go as a whole.
Right now, foreclosed homes and rental properties are not influencing the market. Once they hit sales numbers again, prices will come down.
6. Pending sales volume
As mentioned, buyers and sellers are staying on the sidelines in this current environment. Most folks are justifiably taking a wait and see approach. For that reason, many observers see the massive slump in pending home sales as only temporary.
But make no mistake, sales volume is way down. Eventually, that catches up to prices.
However, because the virus was an external cause and not a flaw within the housing market itself, it’s possible that the will to buy and sell has not changed. This could lead to pent up demand to transact as soon as state economies reopen. This would lead right back to where we’ve been the past few years: increasing prices.
7. Historical cycles
Looking at past recessions can help set pricing expectations. Based on the Case Shiller Home Pricing Index, average prices dropped by about 30% during the Great Recession of 2007. While a similar outcome is far from certain, looking back at the last downturn provides a recent comparison to show what’s possible.
There are a number of differences this time around, including changes in regulations, real estate technology, and buyer-seller interactions. Banks in particular may be better equipped to weather the storm.
However, if you’re thinking of selling, it’s important to remember that timing markets is impossible. Avoid making the decision to sell your house based on monthly economic fluctuations. Real estate is a long game.
The bottom line: be hopeful but realistic
There is no way to sugarcoat it. As an owner looking to sell, you need to prepare yourself for the possibility that any offer on your home is going to disappoint you.
In this uncertain market, it’s hard to be a stickler on price. After all, recent sales comparables are useless unless they only include transactions occurring after coronavirus. It’s too soon for that.
Fair market value for a house is mostly unknown right now. But if the bulk of economic news continues to be negative, you can expect discounted prices. Be as informed as possible, flexible in your expectations, and prepared for the worst.
If you’re interested in selling your house quickly off market, contact Sundae to schedule an appointment. Selling a house to Sundae means selling as is, thus avoiding the hassle of working with an agent, showing your house to buyers, and paying commissions and fees.
Contact Sundae to learn more.
Joey is a writer, editor, and content marketer with nearly 20 years of experience developing award-winning content strategies and building digital audiences of millions for brands and publishers alike. At Sundae, Joey leads the team responsible for creation and distribution of editorial content across Sundae’s brand channels.