I’m beginning to get a lot of phone calls from people asking the question, “Will the price of my home drop after the dust settles from this pandemic?” It’s a legitimate question even if you’re not thinking about selling your home this year, so here’s my personal opinion with a small disclaimer. I’m certainly not a paid economist, but I have been in residential real estate for 15 years and sold just over a thousand homes during that time. I’ve also been through two very strong seller’s markets and one very strong buyer’s market and because my real estate team sells over 100 homes per year, we tend to see the trends much faster than most.
The housing market in Kansas City has been in a very strong seller’s market for the last five years. We’re in a strong seller’s market right now during COVID-19, and I anticipate us being in a strong seller’s market afterward as well. I do not see any reason why home prices would drop. There is still a shortage of available homes for buyers and that will continue to be the case this summer and into the fall. Although we did see a slowdown in the market through the month of April, we are still seeing the very best homes receive multiple offers. In some parts of the city it’s gotten even worse because, during the “stay-at-home order,” there have been even fewer sellers putting their homes on the market. So prior to April, a home that was move-in ready and priced correctly, may receive three to five offers, is now getting five to ten offers!
We do know there are many sellers sitting on the sidelines waiting for the “stay-at-home order” to end. No one knows how many, but my real estate team has quite a few clients that were going to sell in March, April, or May that will now be selling in June, July, and August. My personal belief is we will most likely see the exuberant spring market show up during the summer of 2020. There are just as many buyers we put on hold too though so no matter what the final numbers prove to be, there will still be a flood of activity that will ultimately drive home prices upward this year.
Now, having said all that, there is one thing that could cause home prices to stall. The Bureau of Labor Statistics believes that the true unemployment rate in the US could be as high as 14.7% today. Industries that have been hit the hardest include restaurants, retail, transportation, and travel. If many of these industries don’t survive and rehire all those people back, then unemployment could potentially continue to hover around 8% to 10%. What most people don’t realize is that when unemployment was that high in 2008 through 2012, there was another 30% to 40% of the population that was also concerned about their current job. Many Americans believed there was a chance they may be laid off or forced into another job that paid less. When that happens, the nation as a whole sort of “hunkers down” and doesn’t buy a new home or a new car. That would be the one thing that may cause home prices to backslide.
But, even in the remote chance that did happen, it’s not like home prices are going to drop in half overnight. The real estate market is a very slow-moving industry. Developers and home builders typically plan months, even years in advance for putting in new home developments and there are always people that need to buy and sell, even in a challenging market like we have right now.
The chart below shows what little impact recessions (shaded in gray) have had on housing prices over the last 60 years. Even the “Great Recession” of 2008-2010 looks relatively nominal. Real estate does not fluctuate like the stock market. You just don’t see huge drops overnight. As long as there continues to be strong demand from buyers and low supply from sellers, home prices will continue to rise in Kansas City.