Shutdown puts damper on Washington housing market

Shutdown puts damper on Washington housing market
The response to COVID-19 has put a considerable damper on both housing construction and real estate transactions, and experts are divided over the long-term effects. Photo: freepik.com

Not only has the state response to COVID-19 paused commercial and residential construction, it has also put considerable restrictions on real estate transactions, and it’s unclear whether the market will remain stable in the long-term.

For now, Windermere Economist Matthew Gardner is leaning into optimism. In a March 30 video he said “the housing market was actually in very good shape when the virus took over, and the economy started to contract. I believe that it will still be in very good shape once we get back to normal – whatever the new normal may look like,” adding that this assumes the business shutdown ends and that “the economy will resume some activity before the fall of this year.”

While builders argue their work should count as an “essential activity” under Governor Jay Inslee’s shelter-in-place order, the shutdown has permitted restricted real estate sales to proceed within the following guidelines:

  • Prohibiting in-person meetings except when necessary;
  • Prohibiting open houses; and
  • Property viewings and inspections are limited to two people.

This order means that thousands of transactions currently pending can be completed, which Washington REALTORS® President Kitty Wallace said in a March 31 video update will help reduce the possibility of homelessness. “As we know in many cases, the ability to close these transactions literally means that our clients will have shelter.”

In a March 28 video update, Washington REALTORS® Hotline Lawyer Annie Fitzsimmons urged real estate brokers not to violate those restrictions and risk an industry shutdown. “The order came out without any of you knowing it was coming out; the order will be taken away just as quickly if we as an industry abuse the latitude given.”

According to economist Matthew Speakman with Zillow, on a national level “purchase mortgage applications declined by double-digits over the past week. No matter how you slice it, the retreat in overall applications (down 15.3% from a week before) is another step backward for the mortgage market.”

Among the reasons Gardner believes Washington’s market will remain stable is Inslee’s moratorium on residential evictions, which “will significantly limit, in my opinion, foreclosure activity.”

The lack of construction activity aside from low-income or affordable housing means few, if any, new units on the market. That could change if Inslee moves to designate all construction as “essential activity,” though Gardner said: “I do not see that happening – at least in the foreseeable future.”

A March 31 letter to Inslee co-signed by the mayors of Kennewick, Richland, West Richland and Pasco requests that construction be allowed to resume, “which will ease the economic impact of the coronavirus response we are already experiencing. We think it a reasonable and prudent step to allow this kind of work to continue.”

Gardner said that “demand is highly likely once the pandemic is behind us,” though prices will remain flat or increase slightly “as we move through the upcoming recession and toward the end of the year.”

However, economic analyst Jesse Colombo says the U.S. housing market prices are highly inflated and due for a correction. In a March 31 Forbes article he argued that one factor contributing to a second housing bubble are Airbnb “superhosts” who’ve purchased dozens of homes and rely on guests – who have all but disappeared – to pay the mortgages.

His observation dovetails with a warning by Speakman that “with millions of monthly payments coming due for the first time since the COVID-19 crisis unfolded, lenders and servicers are bracing for a wave of borrowers asking for relief on their monthly payments. This will result in a loss of revenue that many lenders and servicers don’t have the capacity to withstand, particularly if this continues for several months.”

Colombo writes: “I’m very concerned that the frothy U.S. housing market will be forced to come back to planet earth very soon, which will drag the overall economy down even more.”

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