Money has a funny way of creeping around. And, let’s be honest, it tends to creep towards people who already have a lot of it, so it’s no surprise that Jeff Bezos has made approximately $25 billion during the Covid pandemic, or that the banks that processed the Federal government’s $349 billion loan program booked over $10 billion in fees.
Things are a bit more complicated for the rest of us financial mortals, however, and you need look no further than the topsy-turvy world of real estate for evidence of that. At the end of April, the Los Angeles Times described the market as “seized up,” and Zillow reported that the number of deals entering escrow had fallen off a cliff by mid-March. Art dealer Larry Gagosian, who knows a thing or two about money, recently told “Bloomberg News, “You are stupid if you just pretend that nothing is going on. Buying art is not a priority, even for active collectors. They have other concerns now.” And when Larry Gagosian has a hard time selling art, you can be sure that the old rules no longer apply.
Despite the free-falling economy, the case can be made that, if your income is stable, it’s a great time to buy a house. Mortgage rates are at an all-time low, and less people will be completing with you for the house you fall in love with. For many years it’s been a seller’s market, but a change is beginning to come. At the same time, lots of sellers are taking their homes off the market or cutting asking prices, and there’s generally less inventory available. Data from Seattle-based Redfin shows that home de-listings spiked during the final week of March, and there’s no doubt that sellers are wary. The only way to break up the logjam of fear is a vaccine.
“Now that we know the virus can stay in the air in aerosol – not even a droplet, just aerosol – for several hours, it’s going to be tricky to show a house,” says veteran L.A. agent Barry Sloane. “Would you want somebody coming through your house tracking germs and virus in from the street and using the bathroom? I haven’t seen this yet, but I think what will start happening is that sellers will get out of their houses and stay somewhere else while their house is staged, and they’ll basically be absent from the change of ownership process.” This approach to moving house is a luxury available to the very few, of course, because it requires being able to buy or rent another home before selling.
And, there’s another new wrinkle: you might need to put more money down now, and a have higher credit score, too. “It’s always been hard to get a loan but now it’s really hard because of rampant unemployment,” another agent points out. “There are all these new really tough restrictions on who they’ll lend money to, and many banks are demanding a letter from your employer saying that you’re on full salary, guaranteed for the next few years. Why give you a loan when you may not be able to make payments in six months?”
“The real estate market is dead,” another prominent agent in L.A.’s westside flatly declares. “They’re all putting a happy face on it and doing lots of webinars, but no one is making any money, and it’s not going back to what it was. I expect the market to be flooded with high end homes people can no longer afford, and while I’m sure there are people relying on stock portfolios who are doing fine, it’s definitely hurting the entertainment community which has totally shut down for obvious reasons. Lots of television and movie people are going to be in trouble because many of them live hand to mouth, and those people comprise a huge part of the real estate market in southern California. This means prices will tumble. I think it will take a few years for the market to rebound, and the only thing to do now is to get in a hammock and read a book.”
But wait: there may be a silver lining amidst all this turbulence. “The traditional real estate transaction has long been a highly antiquated process, relying on brick and mortar meetings for every aspect, from open houses, to faxing documents to get a mortgage, to closing on the home with in-person closings, notaries and appraisals,” Sarah Pierce recently told Forbes. “None of these elements allow for social distancing, and as a result, we’ve been scrambling to adapt to being fully digital. Coronavirus may just be the forcing factor in the long-awaited digital revolution in the real estate transaction, which has remained stubbornly analog.”