As of just a couple weeks ago, Detroit’s housing market was robust. Though inventory has lagged behind demand, property values had seen steady increases over many consecutive years.
The novel coronavirus (COVID-19), however, has upended life here and around the globe, casting a shroud of uncertainty over every economic sector. Companies are laying off workers. Restaurants, bars, casinos, and most businesses in the service industry are closing indefinitely. Global travel and supply lines have ground to a halt. U.S auto sales are expected to drop dramatically. Some experts have already declared that the world is in the midst of an economic recession—and it could get much worse.
But what about the housing market? Real estate is generally seen as a stable way to build wealth by gradually increasing your total equity in a property over time. (Of course that assumes the property increases in value, which it doesn’t when the housing market is the cause of an economic downturn as it was with the Great Recession in 2008.)
With an economic downturn this widespread, every expert interviewed by Curbed Detroit expects the housing market to slow down as well. The question is exactly how much and what potential buyers or sellers should do.
Signs of a slowdown
Gabriel Ehrlich, director of the Research Seminar in Quantitative Economics at the University of Michigan, created a model to forecast the impact of COVID-19 on the economy. He says that the underlying fundamentals of the economy were strong prior to the outbreak, but that “the asset markets were going pretty crazy—that’s not a positive sign.”
Uncertainty in general, Ehrlich says, is bad for housing. If there are doubts about sources of income or whether or not a home will appreciate, people are much more likely to hesitate in making a big purchase.
“One thing about the housing market is that there’s a lot of psychology involved,” he says. “When you buy a house, for most people, that’s the biggest financial transaction of their lives.”
Detroit realtors have been finishing deals with accepted offers and heading towards closing dates with optimism. “For sellers in current deals, we haven’t had anybody back out,” says Nika Jusufi, broker and owner with Nika & Co. “In the past week, we’ve had three closings, plus another three or four coming up. As of now, those haven’t been compromised.”
But Jusufi adds that she’s received fewer inquiries from interested buyers and sellers in the last week as people take a wait-and-see approach. “Those early in the search are more hesitant,” she says.
What to do as a seller
For people that need or want to sell, realtors have been advising their clients to move forward as usual. “People aren’t sure whether they should put their homes on the market or not,” says Austin Black II, broker and president of City Living Detroit. “But when I’m consulting with my sellers, I tell them to do what’s best for you.”
Black says that sellers can benefit by putting a home on the market at a time when there isn’t a lot of competition. Though demand may be low, so is inventory, especially in desirable neighborhoods.
Mortgage rates are also at the lowest they’ve been in decades and are likely to stay that way given the latest interest rate cuts by the Federal Reserve. With easy credit out there, even if there’s a dip in property values, buying could still be an attractive option.
With guidance about social distancing in effect, realtors have been taking creative approaches to showing homes. “We will not be doing open houses in the traditional sense of the word until the CDC no longer recommends social distancing,” Sabra Sanzotta, co-owner and broker at Berkshire Hathaway HomeServices The Loft Warehouse, told Curbed Detroit by email. “We’ll find ways to show the property remotely using FaceTime or other digital tools.”
Long-term effects on housing
There may be a few other reasons to be more optimistic about housing than the economy at large. In an article about COVID-19’s impact on the U.S. housing market, Curbed’s Jeff Andrews writes that a study of past pandemics showed that property values stayed the same or dipped slightly because there were so few transactions. “In short, previous pandemics have simply put the housing market on pause,” he writes.
Moreover, moratoriums were placed on foreclosures for taxes in Wayne County and nationally for federally backed mortgages, which may prevent the bottom from falling out on the housing market.
But ultimately, the long-term effect on the housing market will be determined by how long the outbreak lasts. Sanzotta says that this is the slow season for housing in Detroit and agencies prepare for that. “It will not be a major issue for our local real estate market if the worst of the crisis is over by May,” she writes.
A slowdown lasting many months, however, could be a problem. “It’s tough to know exactly what we’re going to see in the housing market, though I do think it will be affected,” Ehrlich says. “But if we enter the spring season—which is primetime for the housing market—still under quarantine, that’ll be pretty terrible news.”