Covid-19 Effects on Real Estate
Analysis of the Effects of Covid-19 on the Real Estate Market in Brevard County
Last updated 1/5/2021 with data through 12/26/2020.
We are working on new graphs that incorporate 2021 data. We anticipate having these graphs published by February 3rd, 2021
Most people’s lives have been drastically altered by the restrictions caused by Covid-19. The changes in our day-to-day routine are profound. But imagine the added uncertainty for those people who were going through, or about to go through, life transitions at the time this pandemic started. We’ve had quite a few people ask us how Covid-19 is affecting the Melbourne Fl real estate market. This question is especially important for people who have their homes on the market, need to sell their homes, or are in the process of buying one.
Supply/Demand & Price
To answer this question, it’s critical to analyze current data. Unfortunately, this isn’t as easy as just running a report. So, we here at Florida Coast Realty Partners have pulled and analyzed data daily for all of Brevard County residential real estate from February 23rd through December 26th for both 2020 and 2019. The results can be found in the following graphs.
Summary of Findings (For those who don’t want all the details)
Due to the pandemic and the related shutdown, in Brevard County, both the number of homes/condos coming on the market (supply) and the number of homes/condos going under contract (demand) had decreased significantly between the end of February and the middle of April 2020. Subsequently, both supply and demand shifted back towards where they were, but now supply and demand has settled into a new pattern. In the case of single-family homes, the number of sales is currently up over 50% from a year ago. And for condos, the number of December 2020 sales is up on average over 60% from December 2019!. But new listings have not increased with the increased demand. This is true for both the condo market and the single-family home market.
This overall increase in demand without the increase in supply is great news for sellers of Brevard County real estate! And as we might expect given that Covid only negatively impacted home sales for a brief six week period, the data shows that there was no initial negative impact on sales prices due to the pandemic. Conversely, in the past two months home prices have actually shown signs of rising as much as 20% over the previous year. This increase is likely due to 2020’s historically low mortage interest rates coupled with the low volume of homes for sale. Check back for bi-weekly updates. (Note that this data is only from Brevard County real estate and may not represent what is happening in other areas of Florida.)
The first two graphs below show the trend in the number of single-family homes and condos that went under contract during this period in 2020 versus 2019. For single-family homes, the 2019 graph shows that sales remained relatively stable throughout the year with the normal trend of higher sales in the spring and early summer and lower sales in the fall and winter. However, in 2020 single-family home sales had a distinct pattern of decline from the end of February through the middle of April, then a distinct recovery from mid-April through June, which was then followed by a leveling off. Currently, the volume of home sales is significantly lower than before the pandemic started, but that is to be expected because December is traditionally a low season for home sales. However, what is surprising is that single-family home sales are nearly 50% higher than what they were in December 2019. Similarly for condominiums, there was a significant decline through mid-April 2020 and then a subsequent rise to above pre-Covid levels in June. Due to relatively low volumes for condos, the data shows a good amount of fluctuation from week to week, but we can see that the average December 2020 condo sales are about where they were prior to Covid but are up over 60% from where they were in December 2019!
The next two graphs show the trend in the number of single-family homes and condos that were newly listed from February 23rd through December 26th in 2020 versus 2019. Both graphs show that at the end of February 2020 more homes & condos were coming on the market than in the same period of 2019. However, in 2020 the number of new listings started dropping after March 1st and continued that trend until the middle of April when it hit its low point at less than half of what it was pre-Covid, and less than half of what it was in April 2019. Since mid-April 2020 the number of newly listed single-family homes has been fluctuating somewhat but with an overall increase from the low point, to levels at or just below what they were during this period in 2019. The graph for condo listings is a little difficult to read due to low volume causing significant fluctuations from week to week. But the graph does show (similar to the single-family home graph) a decrease in listings in 2020 from the beginning of March to the middle of April. Since the middle of June, condo listings have been on average a little below 2019 levels.
It’s important to understand the balance between the number of houses on the market (supply) and the number of houses being sold (demand). Typically, the way the market works is that when supply is up and demand is down, it is easy for buyers to get good deals; and conversely, when demand is up and supply is down, sellers benefit and prices typically rise. The graphs presented above show the effect Covid-19 has had on supply and demand. Specifically, the second set of graphs depicts changes to supply. These graphs show that supply was declining during the initial stages of the pandemic but has now somewhat leveled off at levels near what they were this same time last year. Demand is represented by the first set of graphs (new pending sales). Those graphs show that while demand sharply declined in March through mid-April, it has since recovered and remains above 2019 levels. To summarize, since the pandemic began, demand has increased considerably, while supply is averaging a little below the prior year’s levels.
To best determine how these changes have affected the overall balance of the market, we can look to another metric used in real estate – “Month’s Supply of Inventory” which I will abbreviate here as “MSI”. The MSI reflects the number of months it would take to sell all the current inventory of homes at the current rate of sale. The formula is Total # of Active Listings divided by the # of Sales. Typically, the number of sales used in the formula is a rolling average over the last 12 months. However, given that our current circumstances are unique and ever-changing, we are calculating the MSI on a bi-weekly basis using the actual number of sales in a 2 week period and then converting that bi-weekly supply of inventory into a monthly number by dividing it by 4.2 (the average number of weeks in a month) and multiplying by 2 (since it is a 2 week period).
It’s OK if you didn’t completely understand the previous paragraph because we’re going to give you the gist of it now. The lower the “month’s supply of inventory” (MSI) number the better the market is for sellers, and the higher the MSI number the better the market is for buyers. A “Seller’s Market” is commonly defined as when the MSI is at less than 6 months and a “Buyer’s Market” when the MSI is greater than 6 months. In the last few years, we have been in a strong Seller’s Market with the MSI being at approximately 2 to 3 months, but as you will see from the following graphs, 2020 has proven to be a considerably stronger sellers’ market.
- Lower MSI is good for sellers
- Higher MSI is good for buyers
- “Seller’s Market” defined as MSI < 6 months
- “Buyer’s Market” defined as MSI > 6 months
The next two graphs depict the MSI trend for February 23rd through December 26th, 2020 versus the same dates in 2019. The single-family home graph shows that the MSI during this period in 2020 was steadily increasing until mid-April when it hit 3.9 months but after that experienced a sharp decline followed by a slow decline to now being at 1.6 which is considerably lower than on March 1st, 2020 (2.3 months) and much lower than it was on March 1st, 2019 (5.0 months). The condo graph shows a similar trend but with a much sharper increase and subsequent decrease. The condo MSI is currently at 2.8 months which is less than March 1st, 2020 (3.8 months) and much less than this time last year (7.0 months). These low MSI numbers are fantastic news for sellers!
And finally, we come to what most people want to know; how has Covid-19 affected home prices? The short answer is “it hasn’t” yet. The graph below shows that during the initial months of the pandemic, prices had remained pretty steady at levels a bit above where they were in 2019, which is attributed to normal market appreciation. This finding makes sense since home sales were only negatively affected for a brief period during Florida’s “shelter in place” order. However, the graph also shows that in the last two months prices have begun to rise more considerably. For the most recent 2 weeks prices were up around 11% from the same dates in 2019. But in a couple of weeks in October and November they were up as much as 20% over 2019. This trend is likely driven, at least in part, by the historically low mortgage rates that currently exist, along with the lack of homes for sale. (Note that we cannot see a final sales price on a home until the sale actually closes, and since it typically takes 30 to 45 days after a contract is signed for the sale to close, any price changes we see in the graph, really reflect what buyers were paying 4-6 weeks prior.)
As long as the current market remains extremely favorable to sellers, I predict that the above-average price increases we are starting to see will continue for Brevard County real estate sales. Of course the big question is will the market shift once the government’s mortgage foreclosure protections lapse? We will continue to track the data to find out what’s happening as it happens. Stay tuned for bi-weekly updates.
Real estate has been deemed an essential service, so in-person home showings are still legally allowed despite Florida’s stay-at-home order. But it is up to sellers to decide whether or not to allow people into their home at this time. If the home is vacant, the seller will typically allow in-person showings, but if the seller occupies the home, showing restrictions are often being put in place. Many home listings now have virtual tours and in some cases, the seller is requiring that the potential buyer watch the virtual tour and provide a loan prequalification letter before scheduling an appointment. Some sellers are not allowing any in-person home showings, while other sellers will allow showings but are instructing everyone who enters to wear provided booties and to not touch anything. If you are a buyer, the first thing you need to determine is whether or not your agent is willing to do in-person showings. If your agent is not comfortable with in-person showings at this time, ask them to provide an agent that will take them. Your agent will likely be willing to pay another agent in their place, rather than risk losing you as a customer. As the buyer, if you are not comfortable viewing homes in person, then ask your agent if they will create a virtual tour for you if one isn’t already provided.
Mortgage Prequalification/ Preapproval
Some lenders are being more restrictive on who they will lend to during this time. If you are a buyer who received a pre-qualification or pre-approval letter prior to Covid-19, request that the lender issue a new one. And if you are a seller under contract, have your agent check with the lender to be sure everything is on track. Also keep in mind that many people may be out of work or facing reduced pay due to this pandemic and that will affect their ability to obtain a mortgage.
For those people who were already under contract when the pandemic hit, a contract addendum was created by the Florida Realtor Association which allows the buyer and seller to agree to extend the deadlines in the contract if necessary. If you are executing a new contract during this time, be sure to leave enough time in the contract to allow for possible delays due to Covid-19.
Traditionally, closings involve the buyers and sellers coming together at the closing agent’s office to sign all of the paperwork. This is no longer the norm. Individual title companies and attorney offices are coming up with their own recommended procedures. Some are still allowing in-person closings, but most of those companies are requiring that the seller and buyer sign at separate times in order to limit the number of people in the room. Other companies are requiring remote closings where a mobile notary goes to the buyers and sellers homes to obtain their signatures.