Will the paranoia kill the Boston real estate for sale market?
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Top real estate stories as it relates to the cornavirus
Here are some excerpts of what I’ve been reading recently regarding the Coronavius and its impact on the Boston real estate for sale market.
Last week, the International Monetary Fund (IMF) cut its forecast for global economic growth by 0.1%, but is still calling for an expansion in 2020, albeit at a slower pace. Similar orders of magnitude have been forecast for the domestic economy, with groups like Wells Fargo and others expecting GDP to grow by 10-20 basis points slower than their pre-Coronavirus forecast. Growth is expected to be slower, but the economy is still expected to grow.
The Federal Reserve issued an emergency 50 basis point cut to their target interest rates, and guidance suggests that the Fed may be open to future reductions in order to counteract the negative impacts to financial markets. This should help to reduce the cost of borrowing and make housing more affordable over the near term, which should help to offset some of the negative impacts to housing demand associated with rising uncertainty.
Buyers May Be Discouraged By Rising Uncertainty and Recession Risk, But Is It Still a Good Time to Buy?:
This week, mortgage rates fell to an all-time low level of just 3.13%. That is down from 3.80% at the start of the year and represents significant cost savings over the life of a 30-year loan. For buyers who can afford their monthly payments, the economic uncertainty that is driving rates lower provides an opportunity to capitalize on significantly reduced borrowing costs that they will enjoy for years to come. Short-run risks to the economy exist but are arguably offset by long-run benefits of lower rates at the individual level.
Financial Market Volatility Could Reduce Demand For Luxury High Rise Condos, But Also Create Potential Opportunities for Luxury Condo Buyers:
The recent turbulence in financial markets has already impacted household wealth. This could reduce demand for luxury high rise condos for sale in particular. However, with less luxury buyers, there could be opportunities for price discounts for buyers who choose to remain in the market for Downtown Boston high rise condos. Real estate may also act as a buffer against potentially larger declines in the financial markets.
Reduced economic growth in China, specifically, could stifle demand for downtown Boston real estate this year. However, foreign buyers represented just small protion of Boston condo sales last year. In addition, because domestic buyers typically finance their homes in much larger proportions to their foreign counterparts, low rates could stimulate more domestic demand that would help to offset the impact to foreign buyer demand.
Because the Embassy and many consulates are closed or may have limited hours in China, and elsewhere, there may be difficulty in providing a properly notarized deed to the property that escrow will accept and title will insure.Advise sellers to make efforts to obtain the deed early in the transaction. If sellers are currently in the U.S., make efforts to comply before returning to their foreign home country. If contract has not been accepted, foreign sellers might want to consider a contingency allowing a seller to cancel if they are unable to obtain notarized deed.
Many of the inputs to MA Building Industry are sourced from Asian countries including China. As the Coronavirus disrupts these supply chains, the cost of those materials may increase over the short run or become limited, which will increase the cost of construction and potentially reduce the pace of new residential development below its already-lackluster pace in 2020.
Improved affordability stemming from lower rates combined with fewer new Boston condos being constructed as the construction supply chain is impacted could lead to more upward pressure on home prices in growth areas such as Seaport District. Unsold inventory is already at low levels, and reduced construction activity means that is likely to continue—especially if buyers respond to lower rates.
The situation remains fluid, and conditions could deteriorate beyond what is currently envisioned depending on the severity and duration of the outbreak, but if current economic forecasts of modest declines in GDP growth are realized, the effects of lower rates should help to offset the effects of a slower economy and increased economic uncertainty such that Downtown Boston would still achieve a modest improvement in both home sales and prices this year.
At the turn of the century, the negative impact of the SARS virus began to fade within 6 months of the outbreak coming under control. However, unlike with the Coronavirus, SARS did not have significant impacts on either consumer spending or domestic financial markets. The size of the impacted population and the death toll is also much larger with Coronavirus, which suggests that the eventual recovery will play out over a longer period of time.
It’s clear that the Coronavirus will have an impact on the economy and the Boston real estate market in 2020, but it is also clear that it is not time to panic. The effect of lower rates will help to offset some of the headwinds in the Boston condo for sale market, Economists and other experts have revised downward projection on the future growth on U.S, economy, but only by ten(s) of basis points—not hundreds. The situation remains fluid and as a Boston real estate broker I will be monitoring this situation closely and providing you my readers with updates as information come in, both positive and negative.
APRIL 2020 NEW UPDATES ON HOW THE CORNAVIRUS IS IMPACTING THE BOSTON REAL ESTATE MARKET