Stuck on ‘pause,’ housing market braces for virus’s impact

The pandemic and its shutdown of social interaction has had a chilling effect on the housing market, much like a spring blizzard blindsides the early daffodils.

Many buyers and sellers are exiting the market, data suggest, as concerns about job security and health cause people to put life-changing plans on hold. “I’m calling it the Great Pause,” said Tommy Choi, a real estate agent at Keller Williams Chicago-Lincoln Park.

“There won’t be a spring selling season this year, that’s for sure,” said Ron DeVries, senior managing director at appraisal firm Integra Realty Resources.

What that means for prices remains guesswork, but the issue is vital to homeowners who remember the ruinous decline in housing values during the 2008-09 recession. Circumstances are different this time and there is no historic precedent to guide analysts, so expert opinions to vary about the direction of housing prices.

For renters and their landlords, the picture is mixed. A little leverage has shifted to the tenants, as evictions currently are on hold. With the spring a popular time for lease renewals, fewer building owners are pushing for rent hikes, fearful they’ll only get vacant apartments in the bargain. “For a lot of landlords, the big question is what’s going to happen in May,” said John Kennedy, executive vice president of operations at Chicago-based Evergreen Real Estate Group, which owns or manages 8,500 units, mostly in the Midwest.

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A similar hold-your-breath attitude is common among experts in the for-sale market. Geoffrey Hewings, who analyzes housing sales as emeritus director of the Regional Economics Applications Laboratory at the University of Illinois, said the pandemic’s negative effects on the market will increase.

“I’m a lot less optimistic than most folks,” he said. Hewings, who compiles monthly reports for the Illinois Association of Realtors, said as layoffs and economic pain spread, there could be a spike in foreclosures this summer.

“It depends on how long the lockdown lasts and the effect it will have on people,” he said. “A friend and I were talking about when we’d feel comfortable going to an opera or a baseball game. Probably not this year. So are people going to feel comfortable going out looking at homes?”

Hewings’ most recent report for the Realtors, covering March, picked up only pre-pandemic business and showed things humming along in the Chicago market, with average prices and sales volumes both rising. The tougher news will come when April’s analysis is done.

Redfin, which crunched Multiple Listing Service data for the week ending April 10, found prices flattening in the Chicago region and a 25% decline in active listings compared with a year ago.

Looking at MLS data within the city itself, the Chicago Association of Realtors found a more than 60% decline in new — as opposed to active — listings compared with a year ago for the week ending April 11. It said the year-over-year inventory was down 20% for single-family detached homes.

“Housing inventory will continue to be a problem,” Hewings said. During the last recession, the inventory reached an 18-month supply, and now it’s down to just a couple of months.

Choi, past president of the Chicago Association of Realtors, said constrained inventory may stabilize prices in the coming months because it could lead to more bidders per listing. “We were starting to see a shift from a seller’s to a buyer’s market even before the pandemic,” he said.

He also said there are indications of pent-up interest from buyers. Mortgage brokers are saying they are writing more pre-approval letters for buyers, Choi said, and online searches of listings have increased as people have sheltered in place.

Showings continue but now are often only virtual sessions, or physical meetings subject to state guidance that limits them to four people.

One thing that confounds the experts is they can’t use anything in history to judge the pandemic’s impact on real estate. The Great Recession of ’08-09 was fueled by debt, so it hit housing more than other sectors. COVID-19’s reach spans the economy. “It can be comforting and it can be scary that we’re all facing this at the same time,” Choi said.

For Hewings, it comes down to one observation that applies, pandemic or not. “When people are concerned about their jobs, the last thing they want to do is invest in the housing market,” he said.