My recent presentations usually start with this message: The industry is moving slowly, but it’s never moved this fast. That has never been more true than today.
International and historical data shows that as the pandemic spreads and more stringent lockdown measures are put in place, the volume of real estate transactions will drop significantly — up to 90 percent. Although the drop is temporary, only the most agile and resilient businesses will survive.
Transaction volumes will drop
The available data from China, South Korea and Italy shows that the current pandemic will likely cause a temporary, but dramatic, drop in overall real estate transactions.
The following chart shows property transactions in China during the early stages of the outbreak. Transactions dropped significantly — nearly 100 percent — during a number of weeks during the crisis and are now growing again (but are still down more than 50 percent from last year).
There are similar results in Italy, with a top portal telling me that they expect transaction volumes to be down 20-40 percent in February and 70-90 percent in March. Another source cites that visits to apartments for sale in early March were down more than 50 percent compared to a year ago.
In South Korea, national deal volume was down 80 percent in the first nine days of March and down 90 percent in the nation’s capital of Seoul.
Zillow’s recent research on pandemics shows a similar trend from Hong Kong during the SARS outbreak in 2003; transaction volumes fell by 33-72 percent as customers avoided human contact (“avoidance behavior” included avoiding travel, restaurants and public gatherings). After the epidemic was over, transactions snapped back to normal.
The drop in transactions is immediate and severe, but it also appears to be temporary. The data suggests that it might take up to six months (or more) for transaction volumes to return to normal levels.
Virtual tours won’t save your business
It’s likely that we’ll see plummeting transaction volumes in other international markets as the pandemic spreads. There will be more than a predisposition for social distancing; it will be a temporary halt to a large portion of the real estate market (as evidenced by the data above).
Virtual tours won’t stop the decline. They are no replacement for an actual in-home visit. If transaction volumes drop by 80 percent or more — driven by market uncertainty, quarantines, travel restrictions and shelter-in-place orders — no amount of virtual tours or clever online outreach will make up for that decline.
Long-term consumer behavior changes
The pandemic might very well leave behind a number of long-lasting changes that impact the world of real estate in its recovery.
Social distancing may lead to the accelerated adoption of services that facilitate streamlined real estate transactions. Once more consumers experience the benefits of selling a home without dozens of open home visitors, iBuyers may see increased adoption. Once homebuyers experience a closing with an online notary, more will expect it next time.
New products and services, including iBuying, online notaries and virtual tours might become a new customer requirement in a world of increased social distancing. It’s an evolution of consumer needs, not a solution to a pandemic. And those individuals and firms that best meet changing consumer needs generally win.
Survival of the fittest
Using the data above as a reference, it appears likely that the current pandemic will cause a significant drop in transaction volumes for a period of time, after which activity will resume and approach normal — but only after many months.
The most important strategy for businesses and agents alike becomes quite simple: Make sure you’re around for the rebound.
It’s nearly impossible to pivot to a new businesses model during an economy-shuttering pandemic. Virtual tours won’t save your business when transaction volumes drop 80 percent. The alternative strategy is to weather the storm — cryogenically freeze yourself — ready to emerge when the recovery begins.
All real estate businesses will be moving quickly to adapt to the changing environment. It’s those that are able to move the fastest, adapt gracefully, and have the strongest foundation and balance sheet (survival of the richest) that will survive and thrive in the recovery.
The real estate pandemic survival guide
With the evidence and hypothesis outlined above, I conclude with the following real estate pandemic survival guide.
- Step 1: Be around for the recovery. There is a temporary period of pain to get through. You must survive. Lower your expenses, and conserve cash to give yourself the longest runway possible. Virtual tours won’t save your business.
- Step 2: There is no Step 2. Survival is everything.