Maithya Kitonyi Blog | Is The Coronavirus Crashing the Housing Market? | Talkmarkets
Creator of CAGRValue.com and Individual/Private investor

Mr. Kitonyi is the founder of CAGRValue.com, a stock investing blog that focuses on growth investing and business value creation. Given the nature and the efficiency levels of the modern stock markets, it's highly unlikely many stocks will be undervalued. Many, though, could be overvalued ... more

Is The Coronavirus Crashing the Housing Market?

Date: Wednesday, March 4, 2020 8:58 PM EDT

The world is going through one of the biggest disease outbreaks in recent memory. The coronavirus has now killed more than 3,000 people globally while those diagnosed with the deadly virus are approaching 100,000.  China accounts for the gigantic majority of those figures but some countries like Iran and Italy have also witnessed a huge spike in reported cases over the last few weeks.

The net impact of this is the inevitable stifling of business activity. Italy has already announced that football matches will be played behind closed doors until further notice. Some think that they should be postponed all together amid coronavirus fears. In the US, fatalities are in the lower single digits while in Africa, six cases have been reported. If the spread of the coronavirus continues, it could bring global economies to their knees. 

The housing market suffering amid coronavirus fears

Already, the housing market has started to show signs of weakness with business activity coming to a standstill in the most affected areas. This could quickly spread to other industries if proper measures are not taken to slow down the spread. Nonetheless, some could still argue that there is more to the current crash of the housing market than just coronavirus.

Based on the latest US housing data, inventories have plummeted to new multi-year lows while wage growth missed the expected (YoY) growth for the last two consecutive months. Fixed and variable mortgage rates have also fallen, and this could lead to a decline in house sales this year. This would lead the housing market into one of the biggest housing crises in recent years.

The coronavirus affects the housing market in a number of ways.

  • First, the impact on global economies means that spending income is affected, which in turn reduces the amount of income available for investment in housing projects.

  • Second, in areas that are highly affected, people have stopped going to the office to avoid the risk of catching the virus. This means that businesses are paying for office space that is sitting idle, which reduces the return on assets. For those using flexible office spaces, then perhaps it is time to cut down on the area occupied in a bid to managing costs.

  • Third, with mortgage rates falling amid a slowing global economy, it means that real estate companies will struggle to net reasonable profits from their properties as buyers purchase at reduced rates.

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