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How The Pandemic Is Improving Real Estate

Written by Steve Cook Posted On Monday, 20 July 2020 05:00
How The Pandemic Is Improving Real Estate

As we enter the fifth month of masks, social distancing, and all the other changes forced on us by the pandemic, real estate markets are faring better than retail, hospitality, leisure, travel, and other sectors of the economy that continue to struggle. The reason real estate is doing so well can be attributed to the rapid adoption of new technology and the invention of alternate ways to facilitate sales. 

New listings virtually evaporated in the early weeks of the pandemic as owners who could afford to wait did so. Their prudence made a bad inventory situation even worse, reducing annualized inventories 19 percent in May.  The inventory drought kept prices rising despite lower demand and crippled sales, which were 25 percent below 2019 levels.

The free fall in sales predicted by many experts occurred, but now sales are rebounding.  May pending sales, which represent contracts, not closings, exploded by 44.3 percent over April, the largest month-over-month increase ever. By May 22, NAR reported 12 percent of contracts signed in the previous three months had been canceled, from 4 percent in February 2020. The cause was lost jobs

The changes that brokerages have made to stay in business kept sales from dropping more than they did.  Taken together, these new ways of selling could change the way houses are bought and sold more than any time since the migration of real estate listings to the web.  

These changes include:

Remote purchasing became easier. 

Buyers could complete transactions from afar without visiting the properties in person. Remote purchasing is now much easier and more successful than it was five months ago. Virtual tours, “coronavirus” clauses, and virtual closings have expanded the market for sellers and shortened the purchasing process for relocating families and single-family rental investors.

There is no evidence that remote purchasing has increased during the pandemic, but investors looking for single-family rentals might like the idea. Several companies already find properties for investors in good rental markets across the country.

Closings can be scheduled sooner.

Should Fannie Mae and Freddie Mac make permanent their waivers on in-home appraisal inspections, appraisals should be expedited.  Other innovations by lenders that have been underway for years like the application of big data and machine learning hasten mortgage approvals. The use of coronavirus contingency clauses will probably continue until a vaccine is available or longer if they continue to be allowed by the GSEs. 

However, these changes in appraisals, inspections, and mortgage originations have not yet brought about faster closing times. Twenty-two percent of settlements during the pandemic were delayed, just one point lower than delays in February closings. Reasons for the delays during the pandemic were longer mortgage processing time, slower appraisals, and delays related to the government office shutdown. 

Agents have a toolbox of new technologies adopted widely because of the pandemic.

These will foster faster sales, decrease canceled contracts, and make it possible to buy and sell homes as long as the pandemic lasts. These tools include virtual tours, virtual open houses, virtual staging, e-closings, and external inspections that use drones and satellite data. 

Virtual home selling is still in its infancy. In April, 63 percent of agents surveyed by NAR reported they took a client on a virtual home tour, and 46 percent said they took a client on a virtual tour.  By April, foot traffic was at an all-time low, but as states opened up, home visits recovered. By June, only 4 percent of new owners said bought after seeing their new homes only virtually, and foot traffic was only 4 percent lower than it had been in June 2019.

Buyers and sellers will need agents more than ever.  

In his 1995 book “The Road Ahead,” Bill Gates predicted that “the whole system of real estate agencies and commissions may be changed by the principals having direct access to so much information.

Real estate changed a great deal when real estate listings migrated to the Internet, but not in the way Gates predicted.  Both sellers and buyers realized they needed professionals who can guide them through the immense amount of real estate information online. That’s why today only 7 percent of homes are sold FSBO compared to 15 percent before the Internet.

The pandemic showcased agents at the top of their game. With access to market data more current than ever, they helped sellers price their homes when sales were plummeting and guided first-time buyers through a chaotic economy to qualify for mortgages.  They developed and adapted new technology to overcome limitations of imposed by the virus.

I think Jennifer Anderson, one of NAR’s 30 under 30 Realtors, put it best in a June 4 Forbes post.

“Technologies like augmented and virtual reality were a lifeline for the real estate industry during strict social distancing regulations. Because they’ve proven so convenient and efficient, these tools are here to stay. Outstanding real estate agents will begin integrating these technologies to digitize sales and elevate their clients’ experience.” 

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