We're getting asked a lot about the impact of the Coronavirus pandemic on home prices. We're in uncharted waters but wanted to share the California Association of Realtors® (C.A.R.) take on things...
"C.A.R. is still forecasting a modest increase in the median home price for 2020, but the current outlook for home prices is difficult to assess in this rapidly changing environment.
On one hand, lower mortgage rates will make homebuying more attractive — particularly for first-time homebuyers and for lower-priced homes generally, as those home typically rely on debt financing in much larger proportions that investment properties, second homes and luxury properties.
At the same time, there have been significant negative wealth effects in the wake of market fluctuations. This will reduce demand from homebuyers who were relying on financial market wealth as a source of funds for luxury homes, second homes and investment properties. There might also be counter-vailing effects as some investors seek refuge from turbulent financial markets in real estate.
The net effect of these various forces remains to be seen. Currently, C.A.R. expects negative economic growth during the second quarter of 2020 (and possibly the first), and C.A.R. has modeled scenarios where the negative effects on consumer confidence outweigh the positive effects of lower interest rates such that home prices shrink back from their current highs. Such a scenario is contingent upon the coronavirus deteriorating beyond what is currently envisioned with the infection progressing into the summer with peak cases not being reached until the third quarter."
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