Is real estate an essential business? Will home sales continue during the coronavirus pandemic?
Some, even those in the industry, would argue no- real estate is not an essential business that needs to continue operations during the coronavirus pandemic. However, this past weekend, the U.S. Department of Homeland Security Cybersecurity and Infrastructure Security Agency added real estate activity to the list of essential businesses. The amendment to the list was made to include “residential and commercial real estate and settlement services.”
Real Estate Deemed Essential Business: What It Means for the Housing Market
Although the federal government has added real estate to the List of Essential Critical Infrastructure Workers, it is up to state governors to decide whether or not they wish to permit home buying and selling during this time. A few US states quickly declared real estate an essential business including:
- California real estate market
- Washington real estate market
- New Hampshire real estate market
- Illinois real estate market
- Wisconsin real estate market
- Connecticut real estate market
- New Jersey real estate market
Other US states are adamant that real estate activity is not an essential business and should be put on hold during “shelter in place” orders, including:
Related: The Effect of the Coronavirus on the NYC Housing Market
Although California, Washington, New Jersey, and New York are among the US states with the most confirmed coronavirus cases, they have taken different stances when it comes to activity in the real estate market and home sales. For the Washington real estate market, Governor Jay Inslee commented on the importance of real estate being deemed as an essential business:
For homeowners in distress related to the COVID-19 event, it is important that they have the option to sell their home or pursue a refinance or residential mortgage loan modification.
Related: Coronavirus Impact on the Mortgage Industry 2020
He added that if ongoing real estate transactions were not allowed to continue, it would result in “significant legal liability and displacement (if not homelessness)”. The Washington housing market and the state as a whole have been under a “stay at home” order since the governor’s announcement on March 23rd.
Other advocates who support this change in the coronavirus measures, such as the Florida Association of Realtors, stated that, of life’s necessities, a roof over your head is a crucial one. And that is just another way of stating that real estate is essential business. Thus, they believe that the change in policy makes sense.
What does this mean for the US housing market 2020? It means that in certain real estate markets, transactions will now be permitted to continue. Many real estate agents who have suffered a loss of income due to COVID-19 may start to find clients coming back into the market, looking to sell or buy a home. Although the coronavirus stimulus package signed into law last week will provide real estate professionals with unemployment benefits (something that wasn’t extended to them beforehand), it’s possible some real estate agents may get back on their feet during this time in the states that have deemed real estate an essential business. The National Association of Realtors (NAR) stated that it had worked with government officials to help get real estate recognized as an essential business and will continue to work with state governments to push for this change in local COVID-19 rules.
As for property owners, the CARES Act only permits a mortgage forbearance for those who financed their home or multifamily rental property with a federally backed loan. Although the one-time stimulus checks and additional unemployment benefits ($600 a week for 4 months) may help cover mortgage payments, those who wish to avoid foreclosure may now be able to sell their properties even in the face of the COVID-19 pandemic.
It could also mean that initial forecasts and talks of a housing market crash or downturn in some areas may be unfounded. While buyer and seller interest dropped in many markets, areas like the Bay Area housing market and the Seattle real estate market may get a much-needed boost in activity due to this new decision by state officials.
Why the Change in Policy? The Economic Impact of the Real Estate Industry
With many still debating whether real estate is an essential business or not, there is one thing that cannot be denied- real estate has a major impact on the US economy. A 2018 NAR report revealed the economic impact of real estate on the national economy as well as on state economies. For the United States, the real estate industry accounted for 17.4% ($3.6 trillion) of the gross state product (GSP). For the states listed above, here is the economic impact of real estate according to the report:
- California: $608.5 billion (20.5% of GSP)
- Washington: $96.5 billion (17.1% GSP)
- New Hampshire: $15.1 billion (17.8% of GSP)
- Illinois: $139.2 billion (16.1% of GSP)
- Wisconsin: $53.7 billion (15.9% of GSP)
- Connecticut: $48.9 billion (17.8% of GSP)
- New Jersey: $129.3 billion (20.7% of GSP)
- New York: $286.5 billion (17.1% of GSP)
- Pennsylvania: $129.4 billion (16.4% of GSP)
- Vermont: $6.1 billion (18.1% of GSP)
In terms of the impact of the real estate industry on the US job market, NAR estimates that every two home sales in the US create one job. This would mean that 1000 home sales create 500 jobs.
NAR’s data reveals something that most in the real estate industry already know- the economy and the US real estate market are tied together. They prop each other up in times of growth and prosperity and they can easily drag each other down in times of crisis. In a note to local leaders, the Florida Association of Realtors wrote:
While the mortgage financing market played a role leading to the Great Recession years ago, the real estate market led the U.S. out of earlier recessions. It’s not just because of money that changes hands in a home sale, it’s also the ripple effect as the money generated works its way through the economy.
The 2020 Florida Realtors President, Barry Grooms, commented on real estate being deemed essential business activity:
As community builders, Realtors understand the need for social distancing and are dedicated to being part of the solution. But in many cases, every real estate function can be performed virtually, from home showings to even closings. As the nation strives to find balance between the need for virus containment and minimizing those repercussions that lead to a recession, one solution seems obvious: Protect the real estate industry and keep it functioning at maximum speed.
Real Estate Business as Usual During the Coronavirus Outbreak?
If you live in a state where it’s allowed and you’re interested in buying an investment property during the coronavirus to take advantage of low mortgage rates, you won’t find the US real estate market operating “business as usual”. After the announcement came that real estate agents offer essential services, NAR and other leaders in the real estate industry emphasized that agents and clients should still continue to follow coronavirus safety protocols. Although you will have to check with the rules of your state, it’s likely that open houses will still be prohibited. Any showings should be done virtually and closings, digitally. Any meetings that need to be done between real estate buyers, sellers, and real estate agents should be carried out by phone or video calls. The California Association of Realtors warned that if any COVID-19 health mandates were not followed, the change in policy would be quickly reversed in the state:
Notwithstanding this new development, all real estate licensees must take into account the health and safety of their clients and fellow licensees, and follow the existing protocols for protecting against the spread of COVID-19. If such health safeguards and protocols are not followed, the rule for the state could easily change to stop or restrict all real estate activity.
Entering the Real Estate Market During the Coronavirus Pandemic
If you are in a position where investing in real estate right now makes financial sense for you and is permitted, proceed with caution. Make a phone call to your real estate agent and discuss the possibility of moving forward with a real estate deal during the pandemic. Ask about the protocols that your agent is following and if it would be possible to remain in quarantine or practice safe social distancing and still close on an investment property. Finally, not every deal during this time of crisis will be a good real estate deal. Be sure to analyze real estate deals for their investment potential to ensure you’re making the right moves for yourself and your real estate investing business during this time. Use this promo code to get access to Mashvisor’s real estate analysis tools and get 15% off all Mashvisor plans.
Related: US Housing Market Predictions 2020 for Spring