Jason S. Allen had the perfect clients lined up.
Allen, a Keller Williams agent who works in the Palm Springs area of California, told Inman that he recently began working with a couple who wanted to buy a secondary home in his area. The clients were pre-approved by two different lenders, and they had a great interest rate lined up. Allen described them as the “ideal candidates” for buying a home.
But then this week, “they just put the brakes on it,” Allen said.
So what happened?
According to Allen, the specter of a global pandemic got in the way.
“These people wanted to buy,” he explained. “And if there was no coronavirus, we’d be in contract today.”
The coronavirus has been a gradually growing threat for months now. It was first identified late last year in Wuhan, China, and has since spread to more than 40 countries around the world. There have been more than 80,000 cases worldwide, and over 2,700 deaths.
But the situation in the U.S. took a turn for the worse Tuesday when the CDC’s Dr. Nancy Messonnier warned at a news conference that “we expect we will see community spread in this country.” Messonnier also said that the coronavirus could cause a “significant disruption” to daily life and noted that “we are asking the American public to prepare for the expectation that this might be bad.”
The coronavirus has also produced a steady trickle of headlines in recent days about impacts to real estate such as plummeting mortgage rates, a stranded agent, rising anxiety and the advent of “coronavirus clauses” for contracts.
Allen’s experience in Palm Springs, however, indicates that the impacts on the real estate industry may just be getting started.
Allen said that he currently has five different clients in escrow (the sellers who backed out aren’t among them). The coronavirus specifically hasn’t come up with the clients who are preparing to close, he explained, but with two of his sellers, a growing sense of economic anxiety — which has been fueled by virus-related stock market troubles — has indeed become a factor.
“Up until a month ago everything was roses,” Allen said. “But both are very anxious. Both have been watching the stock market. They both really want to sell these places.”
Allen further pointed out that neither he nor his clients who stopped their search are actually worried about getting sick. Instead, there is concern that a drop off in travel would hamstring property owners’ ability to make money by renting out their home when not occupying it themselves.
“They were just like, ‘You know this is kind of scary. I’m going to want to rent my place but if people stop traveling we could be hit,'” Allen recalled his clients saying.
And even when travel and vacation rentals aren’t a factor, the flow of capital could be.
Danielle Hale, an economist with realtor.com, told Inman that cities such as New York, San Francisco and Seattle that have globally oriented economies could see their pool of international buyers shrinking thanks to the virus.
“They’ll probably feel this a little more than other areas,” Hale said of such cities.
Hale went on to say that in many ways, the coronavirus situation is “really unprecedented” because among other things the disease can apparently spread easily and has a higher mortality rate than more common illnesses such as the ordinary flu. But she also said that when it comes to the U.S. economy and housing market, the fundamentals are strong and there is a massive amount of demand.
“Our estimates are that over the last decade or so we’re 3.8 million homes short of where we should be,” she explained of the country’s well-publicized housing supply shortages. “Even if demand takes a hit in the U.S., we’re still at a point where I don’t think we’ll see widespread price declines.”
Other possible impacts from the virus that Hale pointed to include potential labor shortages if the workers who build houses get sick, and decreasing optimism in the health of the market over time.
But she said that at this point, it’s too early to really know what might happen.
Mark Hamrick, a senior economic analyst for financial services firm Bankrate.com, also pointed out that the coronavirus is already hitting global supply chains, with factory closures leading to parts shortages for technology and auto companies, among other things. If supply chain issues continue, he added, that could ultimately impact real estate-adjacent industries such as home construction that rely on raw materials from around the world.
Hamrick also said that economic havoc from the coronavirus “could very easily spark a recession.” He explained that there have been recessions in the past, such as after 9/11, that were “short and shallow,” meaning that they were less lengthy or severe than what happened in 2008. Something similar could happen now.
But like Hale, he said that right now, “It’s just too early to know with a high degree of certainty” what will happen. And whatever transpires, it won’t last forever.
“It’s hard to come up with scenarios that suggest that the outbreak has long lasting economic impacts,” he added.
Still, some real estate professionals are bracing for the worst. One agent in Texas, and who asked not to be publicly identified so that she wouldn’t frighten her clients, told Inman that she is currently “preparing to possibly have to stay in our home for three months and not leave.” She has also canceled an upcoming marketing event because she believes people may be reluctant to gather in large groups during the coming weeks.
While such measures may seem extreme, the CDC itself has indicated that public gatherings may need to be curtailed. During Tuesday’s news conference, for example, Messonnier said that communities might need to modify, postpone or cancel mass gatherings.” She also advised Americans to prepare for the possibility of school and daycare closures.
The agent in Texas noted that Italy has already taken such precautions — schools and museums are closed, for instance, Venice’s famous Carnival was canceled and the annual design industry festival Salone del Mobile in Milan was postponed until late June — and that implementing such measures in the U.S. could hurt the real estate industry.
“I don’t think people are going to be buying homes if we’re all quarantined,” she said.
Hale doesn’t envision the U.S. rolling out draconian measures like those currently being used in other countries, but said that if people were forced into greater isolation that could indeed slow down sales.
“There’s a lot of face-to-face interactions that are part of the typical home sale transaction,” Hale observed.
Not everyone, however, is particularly worried. Kevin Deselms, a RE/MAX agent based in Golden, Colorado, told Inman that “the majority of people I speak to and work with on a daily basis don’t seem very concerned about it, yet.”
“My active buyers have not suddenly decided to put their house hunts on hold because of the possibility that the virus may gain a foothold here in the United States, nor have any of my prospects indicated that it has any real impact on their projected timetables,” Deselms said. “The most profound comment from one of them was, ‘Well, I guess we’ll see what happens.'”
Deselms also said this sentiment seems to be widespread across the Denver metro area, and he speculated that coastal areas that see more international travel could suffer greater impacts from the virus. But for the time being, Deselms does not know anyone who is stocking up on supplies or preparing to homeschool their kids.
“I’m not going to worry too much,” he added.
A number of other real estate professionals echoed this sentiment in various online forums and discussion groups (Inman has reached out to many of them and will update this story upon receiving additional information). And it’s worth noting that while the coronavirus can cause pneumonia or death, for many people the symptoms are more mild and not in fact life-threatening.
Even the agent who is preparing for the worst in Texas said that for now she is actually conducting business as usual. She’s still out and about, showing houses, and said the only direct impact she has seen so far was from one out-of-state client who refused to get on an airplane to see listings.
“They put their homebuying process on hold,” she recalled.
The Texas agent said that she ultimately hopes the worst doesn’t happen. But she also advised real estate professionals to get their finances in order in case they do end up facing some sort of slump during the coming months.
“I think people need to be prepared,” she said. “It’s scary.”