By Mary-Justine Lanyon
The economy of the mountain goes as the real estate business goes. If it’s strong, it trickles down.
That is the opinion of Steve Keefe, the owner-broker of Coldwell Banker Sky Ridge Realty, and the reason he held an online seminar last Friday. In the seminar, he addressed five big questions:
How long will this go on?
Are we in for a market crash like 2008?
What’s happening locally right now?
How is real estate different?
Can I buy or sell and is it safe?
Are rates going to go up or down?
What are the predictions for the near term/long term impacts?
Keefe compared the current shut-down to a “pause” button on the American economy. What will happen when that pause button is released? And how does it compare to the 2008 downturn?
“In 2008,” Keefe said, “it was like a tornado that went through and destroyed the housing industry. Everything was left as dust.
“Today we are dealing with a six-foot snow storm that has shut everything down. It will stop snowing,” Keefe said, “the snow will melt and the underlying structures will be intact for everyone to get back to work.”
He added that “we’re not going anywhere any time soon but we know it will stop snowing. When it gets sunny outside, things will improve.
“I’m not minimizing the situation,” Keefe told his online listeners, “but it’s a very different scenario.”
The three major financial institutions – Goldman Sachs, JP Morgan and Morgan Stanley – agree, Keefe said, that “we will experience a V-shaped recovery. We are in for 90 days of a wild ride followed by a sharp recovery once the snow stops, melts and the pause button is released.”
Keefe noted that there is documentation about previous pandemics when everything was left intact, not destroyed. “Once the concern was gone, everything bounced back sharply, to higher levels.
“We will see a rebound after the second quarter,” Keefe predicted.
As for the housing market, it is very different today from what it was in 2008. Housing prices were inflated in the years leading up to 2008 and mortgages were easy to get.
“Anyone who could fog a mirror got a mortgage then,” Keefe said. “Many borrowers were put into bad loans. Then guidelines tightened and have remained so.”
He added that recently it has been very challenging to get financing so people are better qualified. “It’s unlikely we will experience homes coming back on the market (as we did in 2008).”
Also contributing to the housing crisis in 2008 was an oversupply of homes for sale. Right now, Keefe said, there is not enough inventory for buyers. “We are well into a sellers’ market,” he said.
In the last down cycle, Keefe said, people were using their homes like piggy banks. “Since that downturn, consumers have been much more cautious in protecting their hard-earned equity.” Before, he noted, “people were irresponsible, thinking the industry would keep up. We are in a much more responsible market environment now.”
In 2008, people were walking away from their homes because they were so leveraged. Today, Keefe pointed out, 53.8 percent of all homes in the U.S. have at least 50 percent equity. And 37 percent of all homes are owned “free and clear.”
“People are less leveraged today,” Keefe said. “Americans are sitting on tremendous equity.”
Today’s economic crisis is not housing driven, Keefe said. “There are positive fundamentals in place: low rates, pent-up demand and low inventory levels. Those will contribute to rapid recovery once we return to some level of normal.”
As for pending sales, Keefe said his agents have 63 under contract now – 22 of those since April 1. Of those 22, Keefe said, “13 are primary residences, which represents 60 percent of the sales. We have gone from 30 percent primary residence purchases to 60 percent since April 1.”
How are the agents showing those homes? Gone are open houses and multiple visits to a home a potential buyer is interested in.
“We are much more automated now,” Keefe said. “Technology allows us to function. Sometimes we never meet the seller – everything is done remotely.” And that, he noted, started even before this pandemic.
The agents are conducting virtual tours of the properties, doing virtual open houses. “The agents who are embracing the technology and shifting to virtual tools continue to transact and are busy assisting buyers and sellers,” Keefe said.
“Our number one priority is keeping people safe,” he noted. “We have the things in place – gloves, masks, all the CDC guidelines – to facilitate that.”
Mortgage rates are at historic lows, Keefe said, “with virtually no room to go lower. In 2008, it took years for the mortgage industry to come back to a level playing field. We have none of that now.” And he sees no indication that there will be a sharp increase in mortgage rates.
He cautioned homeowners to beware of forbearance offered by lenders. “Most lenders are not just forgiving and they are not tacking the missed payments onto the end of the loan. They will expect payment at the end of the three-month forbearance. To make four payments at once will create a tremendous hardship,” Keefe said.
Keefe offered his own predictions for the future. He sees a net 20 percent decline in transactions for the year. “I think we will make gains in the second quarter – if that happens, that will be a win. It will be the best possible scenario for us. I’m optimistic that will be the case,” he said.
As for home values, Keefe said they will not take a significant hit. Houses under $500,000 should take a zero hit. Houses from $500,00 to $1 million may see a 5-percent value adjustment and those over $1 million may see a 7-percent value adjustment.
He predicts that the impact of unemployment will be short-lived once the pause button is released. There will be, he acknowledges, “some lasting impacts in some sectors of the job community. “Not everyone will go back to work immediately,” Keefe said. “And maybe they won’t go back to the same job. But there will be jobs.”
One positive Keefe says is possible from the pandemic: He sees a possible major shift with full-time residents moving out of metropolitan areas and relocating to rural areas like the mountain communities.
“People will want to remove themselves from exposure,” he said. “Where will they go? If they have the ability to work remotely – which they have to do now – the crisis will benefit our mountain communities. People have been trained to work remotely.
“I see that as a very real possibility.”