Covid-19 Effects on Real Estate
Analysis of the Effects of Covid-19 on the Real Estate Market in Brevard County
Last updated 5/26/2020 with data through 5/23/2020.
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 real estate market. This question is especially important for people who have their homes on the market, need to sell their home, or are in the process of buying one.
Supply/Demand & Price
The big question for most buyers and sellers right now is what effect Covid-19 is having on the real estate market as it applies to supply, demand, and the value of homes. Unfortunately, thoroughly answering this question isn’t as easy as just running a report. So, we here at Florida Coast Realty Partners have pulled and analyzed weekly data for all of Brevard County from February 23rd through May 23rd 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)
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 significant decreases between the end of February and the middle of April. However, since then,the supply of homes/condos has returned to what it wasbefore Covid-19 affected the market. And surprisingly, the number of single family homes currently being sold (the demand) has increased over 20% from where it was immediately prior to the pandemic regarding prices, the data shows that Covid-19 has had no effect on sales prices. Note that this data is only from Brevard County and likely does not represent what is happening in other areas of Florida. Check back for weekly updates.
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. While in 2019 there were ups and downs to these numbers, in 2020 for single family homes there is a distinct pattern of decline from March 1st through April 11th and then a distinct recovery since April 11th. Similarly for condominiums, there was a decline through April 18th and then a subsequent rise. For condos, the number of new sales contracts is essentially the same as it was in late February and early March, but for single family homes sales are surprisingly up over 20%!
The next two graphs show the trend in the number of single family homes and condos that were newly listed from Feb 23rd through May 23rd in 2020 versus 2019. Both graphs show that at the end of February 2020 more homes were coming on the market than in the same period of 2019. However, this year the number of new listings started dropping after March 1st and continued that trend until the week ending April 11th. At that point the number of new listings was less than half of what it was on March 1st, 2020, and less than half of what it was in the week ending April 11th, 2019. However, in the last six weeks it appears that this declining trend has leveled off, and now for single family homes there is a gradual increase and leveling off. While potential sellers have been reluctant to list their homes during the pandemic, that trend appears to be slowly changing as they become accustomed to social distancing and they see that people are still in the market to buy.
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 good for buyers to get good deals; and conversely, when demand is up and supply is down it is good for sellers 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 now additions to supply (i.e. homes being listed) are back to normal. 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 surpassed 2019 levels. To summarize, demand has increased and supply is approximately back to “normal”.
To best determine how these changes have affected the overall balance of the market, we can look to another metric used in real estate – the “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 weekly basis using the actual number of sales in a given week and then converting that weekly supply of inventory into a monthly number by dividing it by 4.3 (The average number of weeks in a month.).
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.
The next two graphs depict the MSI trend for Feb 23rd to May 23rd, 2020 versus 2019. The single family home graph shows that the MSI during this period in 2020 was steadily increasing until April 11th when it hit 4.5 months but after that experienced a sharp decline followed by a slow decline to now being at 1.7 which is lower than on March 1st (2.1 months) and lower than it was this same time last year (2.7 months). The condo graph shows a similar trend but with a much sharper increase and subsequent decrease. The condo MSI is currently at 3.3 months which is less than March 1st, 2020 and less than this time last year. These low MSI numbers are very good news for sells, especially those selling single family homes.
And finally we come to what most people want to know – how has Covid-19 affected home prices? Well, the short answer is they haven’t, at least not in Brevard County. The graph below shows that prices have remained pretty steady at levels a bit above what they were in 2019. We cannot see a final sales price until a sale actually closes, and since it typically takes 30 to 45 days after a contract is signed for the sale to close, we would expect to see price changes due to Covid-19 to start appearing mid-April. But as this graph shows, there is no indication that prices have been affected at all. This is in line with the other graphs showing that the supply & demand only had a brief dip before returning to normal.
Personally, I find the data very surprising and wonder how this compares to what is seen in other areas of Florida. If this trend continues, it suggests that our local economy is faring much better than one might expect. Stay tuned weekly for 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.