The impact of COVID-19 on Colorado real estate
After a years-long stretch of unprecedented growth, the Colorado real estate market has slowed to a crawl
After a years-long stretch of unprecedented growth, the Colorado real estate market has slowed to a crawl due to the spreading COVID-19 pandemic.
Though real estate transactions have been deemed essential by the state government, open houses and showings are banned. Closing documents are being signed from inside cars; some home inspections are being completed from outside the property. It’s a tough environment to do business in, and sellers know it: A record 761 listings were pulled from the market in March.
And no one knows when it will end. The Colorado Association of Realtors has lobbied the state government to relax some of the restrictions on the industry; in particular, they’re pushing for scheduled home showings of three people or less. However, no agreement has been reached.
In the meantime, an industry that runs on handshakes and face-to-face networking is muddling through. A recent Colorado Public Radio article describes home inspections done via GoPro camera, sellers who haven’t booked a single request for a showing, and buyers who have decided to wait things out because FaceTime showings aren’t good enough. If it’s any consolation, what’s happening in Colorado is happening everywhere else in the U.S.
The national picture
A recent study by Clever Real Estate paints a portrait of an housing market that hasn’t tanked— it’s just on pause.
A survey of homeowners planning to sell in the next 12 months found that only 15% are proceeding with their original, pre-pandemic plans; the other 85% are scrambling. Of sellers who had already listed their home, 23% pulled the listing after the pandemic shutdown began, and 27% dropped the price.
But nearly all those houses are still going to be sold in the future; only 3% of sellers said they had decided not to sell at all because of the pandemic. Most sellers are taking a “wait and see” approach, with some angling for a quick sale at a slightly lower price.
National data from Realtor.com reinforces these trends. In March 2020, there were 15% fewer active listings, 6% fewer new listings than the previous March, and the number of sellers who cut their home’s list price in hopes of enticing a buyer went up 3% over the year before.
However, buyers have put their plans on ice. The Clever study surveyed renters who were planning to buy a home in the next year, and like the sellers, they had to scramble for a new plan. Two-thirds of buyers (65%) had either totally canceled their home search or delayed it; a small portion (16%) were going ahead with their home search, and 28% were still looking at properties, but intended to push for a deal.
Clearly, these numbers describe a market where the advantage has shifted dramatically toward the buyer. Anecdotal evidence from Colorado sales back this up; one Denver seller recently agreed to a $10,000 window well replacement as a condition of the sale. This would have been unthinkable just a couple months ago when buyers were virtually lining up to throw money at every listing.
How are Colorado renters and mortgage holders doing?
Colorado is one of the few states without an eviction moratorium during the pandemic. The governor has issued a guidance advising landlords to try and avoid evicting non-paying tenants, but they aren’t required to. This policy could lead to mass evictions as more and more tenants fall behind on rent; one attorney group estimates as many as half a million Coloradans could be evicted in the next couple months.
A few weeks into the pandemic, many tenants were already struggling. The Clever survey found that while 73% of renters were paying their rent in full, 13% had stopped paying at all, and 3% had already moved out. The remaining 11% arranged to make deferred or lowered rent payments.
How did it get so bad for renters, so fast? The survey found that 46% of them had less than $500 in savings in the first place; 70% said they only had enough savings to survive two months without working, and nearly half (49%) had already exhausted their limited savings. In a high-cost living area like Colorado, the average renter can’t live on $500 of savings.
Still, many tenants will be protected. The CARES Act put a 120-day federal eviction moratorium in place for properties that have federally-backed mortgages and certain government-owned rentals. Experts say this will cover about 28% of U.S. rentals.
So, what about people with mortgages? Fannie Mae and Freddie Mac are allowing homeowners with federally-backed mortgages (this also includes mortgages backed by the VA, USDA and the FHA) to request up to 360 days of forbearance, during which time mortgage payments will be paused with no interest or fees. Homeowners who don’t have a federally-backed mortgage, aren’t covered by the CARES Act. But homeowners as a group are much better prepared for the pandemic, at least compared to renters. The study found that 47% of homeowners had more than $5,000 in the bank, which is almost identical to the percentage of renters who had less than $500 in savings.
What does this mean for the market?
When the market comes out of the deep freeze, it’s expected that supply is going to come roaring back, while demand is going to take a little longer. With so many people exhausting their savings or losing their jobs, the number of serious, qualified buyers will be limited. And the ones who remain won’t be shy about asking for price cuts and concessions. Add to that an economy that’ll remain on shaky ground for at least the next several months and sellers will likely be eager to save every penny, accelerating the trend toward discount and 1% commission options. In high cost-of-living areas like Colorado, where the average commission fee is around $15,000, home sellers will be looking to save on the sale and shelter their equity.
Investors and landlords, facing record levels of rent non-payment and high vacancy rates, may be forced to sell en masse if their properties are no longer turning a profit. While this may suggest a dip in home prices, with disrupted global supply chains, homebuilders are having trouble getting basic materials to begin construction on new housing. Any potential supply glut from stressed homeowners would likely be offset by this decrease in new construction.
Overall, the conventional wisdom that home prices stay firm or even strengthen in a recession looks to be a safe bet. This isn’t 2008; that recession, after all, was caused by the housing market. When the pandemic passes, every indication is that we’ll soon be back to business as usual, in Colorado and in the rest of the country.