Is the housing market going to collapse in Florida?

Posted by Brad Officer on Wednesday, April 8th, 2020 at 1:51pm.

Corona Virus cause Housing Market Crash

Popular question from many of my friends and past customers as it relates to the Corona Virus and these strangely odd times we are currently living in:  Is the housing market going to collapse in Florida?  

Will Corona Virus cause the housing market to crash?

There are plenty of smart people calling for a housing crash in 2020 due to the Corona virus.  They have well founded research to support their claims of a housing collapse in 2020.  They have beautiful graphs with well labeled bar charts and colorful trending lines pointing in all sorts of directions.  They have well written arguments that are much more eloquent than my style of writing. But is this just shock journalism?  Is this just trying to prey on the public's fears? 

Will the Florida housing market collapse due to Corona Virus?  

My answer:  Doubt it.  

There are several key reasons I personally believe the housing market will not crash / collapse due to the Corona virus in 2020.  First, a disclosure:  I'm a local Realtor in Jacksonville Florida.  I'm not an economist nor a data scientist.  I do however have the benefit of 16 years in the real estate industry and I've seen a crash or two.  Albeit, nothing is like what we are currently seeing with the Corona virus. 

My reasoning behind the housing market NOT collapsing due to Covid-19 in 2020:

1. Inventory is already too low.

One thing I've learned over and over again in both a large national scale, city scale, and even down to the neighborhood scale, is that supply and demand is a major factor in driving prices one way or another. 

Before the Corona became a major problem a couple weeks ago, we were rolling into the Spring market with an anemic supply of housing available for sale.  This is following a couple years where we've been well below the 6 month supply of housing mark that really smart people refer to as a "balanced market".  We've been sitting about 3 months supply here in Jacksonville.  That's a major Seller's market, and that keeps Buyers having to jump on the houses when they see them and pay premiums for those houses.  

2. Inventory is dropping. 

I've seen home sellers starting to remove their homes from the market, and I've had home sellers decide to wait on putting their homes on the market.  Understandably, many home owners do not want random people walking through their houses right now, nor do they want to move during this craziness that is the Pandemic of 2020.  (and hopefully the last pandemic we have in my lifetime).  

3. New home construction is slowing.... further reducing inventory.  

I don't care what the national builders are claiming about continuation of construction during the pandemic, but I just don't believe they can continue to push out finished homes at the same pace as pre-pandemic.  It's just not believable. 

Offices have most if not all employees working from home.  Supply chains are disrupted.  Heck, what about dealing with the municipalities for permitting, inspections, etc.  I have to believe there is a slowdown in the delivery of new homes during the pandemic.  

This will reduce the overall inventory available to home buyers and will absolutely be a long ripple affect into the housing market.  It will take months and months to start delivering new homes at the same pace as pre-pandemic levels.  

4. Demand for housing is still high.  

I have several vacant houses for sale around Jacksonville right now.  I can tell you that those houses are still getting quite a few showings during the Corona shut down.  I'm getting inquiries on waterfront homes in Jacksonville.  I listed a nice home with pool in a country club community right about 2 weeks into Corona hell, and that house had multiple showings and went to contract within the first week of hitting the market.  That tells me that the demand is still there in Jacksonville. Further, I'm noticing internet home searches haven't slowed that much and inquiries on listed homes are still coming in. 

Other pro Realtors around the country are reporting similar: 

Ryan Fitzgerald, who owns Raleigh Realty, is actively looking for help to handle the increase in inquiries about houses for sale in his market.  (he's hiring if you are in Raleigh).

Marc Rasmussen, who works in the Sarasota Real Estate market and owner of Dwell Real Estate, is working with multiple Buyers writing offers and has several closings already scheduled for the month.  

Stacie Staub out in Colorado, owns West And Main and specializes in Denver Homes.  Their web traffic and home inquiries have continued to stay consistent.  

Stephen Foster, in Victoria BC Canada, specializes in the Victoria Real Estate market both downtown and surrounding areas, has seen a fairly steady amount of normal business in the bread and butter price ranges within his market.  (I know this isn't in the country, but it does show how we are all interlinked in this crisis).  

Kinga Mills, who works the Oahu real estate market, has seen an increase in online traffic with many web visitors combing through the current inventory of homes / condos for sale in her market.  The lockdown has made it extremely difficult to show the homes in Hawaii, but the web traffic is there!  

Jeff Knox of Knox & Associates and a Realtor in Dallas TX, is absolutely seeing a ton of internet traffic hitting his website as more and more people are at home and realizing they want something better.    

Back in the Great Recession, housing demand was so low and seemed to be forever dropping.  Houses were listed for sale everywhere and created an almost self perpetuating problem of low / no demand.  I can remember parents telling their grown kids that it's not a good time to buy.  None of this is happening today.  In the current market, demand has continued to outpace supply.  

5. Mortgage rates are extremely low

Broken record here... rates are lowest ever... blah blah blah.  You've probably been hearing about low rates for years, and guess what:  rates are at all time lows this year too!  The Fed dropped the fed funding rate to near zero to promote business' borrowing for growth on the cheap cost of money, and this also holds mortgage rates extremely low.  

Low rates = more buying power for home buyers = more ability for Buyers to pay a premium for houses that hit the market.  

6. Home owners lowering their cost of ownership

Hitching on to #5 above, with mortgage rates this low, existing homeowners have been rushing to refinance.  Refinancing has spiked and now about 168% more than one year ago.  (As of the writing of this article)

Therefore, home owners are reducing their monthly expense load by lowering the cost of owning their current home.  I don't see these people deciding to leave those lower payments suddenly by listing their houses for sale.  I certainly don't see any of these people panic selling.  

A side affect of this huge spike in refinancing to lower cost of ownership:  Less of these houses will come on the market, further adding to the low inventory of the past few years.  

7. Government supported forbearance = safety net

Can't make your mortgage payments, no problem - The fed is pushing banks to allow a forbearance.  This alone puts a pretty big safety net on the housing market's values.  

Before the forbearance option - back in the old days, if you got into financial trouble and you needed cash fast or you needed to heavily reduce your debt load, homeowners would often turn to liquidating their largest asset, their home.  I witnessed this during the Great Recession when home owner after home owner would need to liquidate the house due to one reason or another.  There was no real forbearance option for those home owners and they often had to stop paying their mortgages that then caused a nearly unstoppable wave of bad things to their finances.... almost always resulting in having to short sale or foreclose on their home.  This is clearly not happening at the moment.

Now if you are in a financial problem, call your mortgage company.  Actually, you probably have already been contacted by your mortgage company, car loan lender, credit card company, etc.  They don't want you to default on your loan obligations, they would much rather offer a forbearance.    

8. Continuation of cash flow

Your steady and reliable source of income may have been disrupted, but cash flow can continue with the help of several programs from the government.  

Unemployment checks are starting to roll in to the millions who have already filed.  In addition to your state's amount, the fed has added another $600 per week to the checks.  This may not be enough to match your debt obligations, but see #7 above.  

Small businesses have been offered what is basically a grant.  It's called the Paycheck Protection Program, and it allows businesses to continue paying their employees or themselves.  It's a "forgivable loan" as long as the business pays the payroll.  This keeps people off the unemployment checks above.  Personally, I really don't like that it's a Loan ..... should have just called it a Grant, but I'm sure there are some technical reasons behind it.  

Either of those options provide needed cash flow to a very high percentage of home owners.  

One BIG MONSTER hiccup to watch out for:

I'm watching out for bank's changing their borrowing policies.  It's happening now, and it's common for banks to change their lending guidelines based on risk assessments.  IF the majority of banks / mortgage lenders swing the pendulum too far over to the extreme conservative side, then we will have a considerable reduction of the number of borrowers who would be eligible to buy homes.  Regardless of demand, regardless of supply, we need available credit.  Without available credit, inventory could pile up and then we start seeing Sellers reducing their prices in order to compete.... causing a slide downward in home prices.

This hiccup should be just that:  A quick and sudden interruption. I'd expect confidence to return to the market, and we'd see the pendulum start swinging back towards normal lending guidelines.  BUT watch this carefully!  

To summarize and some final thoughts:  

I don't see any signs pointing to a housing collapse.  I don't see high inventory as often a result of panic selling.  I don't see a huge drop in demand due to money being so cheap (watch for the hiccup referenced above).   I believe the government has put in a HUGE safety net with both the Forbearance options and the cash flow continuation options of both unemployment checks and the Paycheck Protection Program.  

Will we see a slow down, of course.  There will be less real estate changing hands in the months to follow, and probably far less.  Less people deciding to sell and less people deciding to buy.  This will change the quantity of transactions.  The longer this goes, we will see some small drops in average sale prices, but I do not see a housing collapse happening.  

If anything, Florida may see a BIG surge in home buyers in the coming months and in the year to follow the Corona Virus Pandemic.  If high taxes, miserably cold and long and dreary winters weren't already enough for our northern brothers, the attraction of moving to the less densely populated and much warmer climate of Florida is certainly starting to look like a winner.

Thank you in advance for Sharing!

 

Give us a call at 904-234-5196 if we can help you buy or sell real estate in Jacksonville, FL.

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