As of writing this newsletter, Colorado is under a state wide Stay-at-Home Order to curtail the spread of Covid-19. Almost all states are under similar restrictions. The number one priority is to stay safe, stay healthy. The Stay-at-Home Order is set to expire on April 26th in Colorado, but as we have seen with previous orders, it can be extended. The order has taken a negative toll on many; job loss probably being the largest consequence.
In uncertain economic times people get nervous. Not necessarily because bad things are about to happen, but because people begin to believe that bad things will happen. It is called Consumer Confidence. And it is easy to feel this way with the constant drumbeat of negative 24/7 cable and internet news feeds. This has had a negative effect on Consumer Confidence. I am not downplaying the threat of Covid-19—it is real. So is the fact that 10 million people filed for unemployment last week. The point I want to make is that our people, and our economy, are more resilient than the negative news media will ever report.
Let’s talk about how this affects local real estate. Real estate was listed as an essential business in the state wide executive order. It is not business as usual. Much caution is warranted. However even in a crisis, people need a place to live, and in some situations they have a critical need and find themselves in between homes due to no fault of their own.
We began March with record high numbers. Showings were up over the same time last year. We had about a one month supply of single-family homes on the market. A balanced market is a 4-6 month supply. We only had 25% of the inventory needed. Sellers were getting multiple offers and buyers were getting outbid. This continued through the third week of March despite all the negative news. The final week of March, showings and under contract listings slowed. Your Castle March closings finished down around 7% over the previous year. Much better than expected.
In April, many sellers decided to hold off putting their homes on the market, or decided to take their homes off the market for a couple months. There were still many buyers in the market. Even if half the buyers dropped out, we still had more buyers than sellers. The buyer demand would have to drop by 75% to create balance in the market, and we did not see anything close to this. Real estate is a supply and demand market, just like all financial markets. Even with fewer buyers in the market, there was still an under supply of homes. The homes that were priced right and in good condition were still selling very quickly. We did see buyers being more cautious and spending more time researching online. Homes that showed well online got in-person showings, the homes that did not show well online did not get as many showings. The best homes still received multiple offers. Overpriced listings still sit on the market longer, which is the case under any market conditions.
HOW WILL ALL OF THIS EFFECT THE REAL ESTATE MARKET?
What does this mean for the future? No one has a crystal ball; however, I am optimistic. We interviewed most of our top Brokers and the feedback we received is that they had a huge pipeline of buyers and sellers that still want to buy or sell, they just want to wait a month or two. It makes sense; why take a chance if you don’t have to? We are anticipating that transactions that might otherwise have closed in April, May or June, might now close in July and August, artificially extending the selling season. Of course there will be some buyers that are out of the market due to job loss, fear, etc. There may also be some sellers that decide not to sell either out of fear or financial hardship. With all the mortgage relief options available, it probably will not be a significant amount.
On April 6th, 2020, the Colorado Attorney General issued a statement that showings will no longer be considered an essential activity. This restriction is slated to continue to April 26th unless extended. This will create an even larger backlog and push closings even further down the road. Once the restrictions are lifted, everyone will jump in at the same time creating a brief period of chaos. It is important to reach out to your Broker now to develop a plan rather than waiting until this chaos begins.
It is safe to say 2020 will have fewer closings than 2019, but will it be enough to drastically change real estate prices in a negative way? Time will tell, but unless we see a huge increase in inventory… my guess is no.