Economic Impact of COVID-19

As of last week, more than 20 million U.S. residents had filed for unemployment. With those numbers increasing weekly, it has caused a shock to the labor market that was thriving before the COVID-19 pandemic. 
 
These numbers, along with the plummeting stock market indices, point toward the possibility of an economic recession. 
 
However, despite such ominous indicators, we can’t be certain that a recession is actually occurring, nor what the long-term impacts may be, until we have more data, explained VA REALTORS® Chief Economist, Dr. Lisa Sturtevant. 
 
“An economic recession is two consecutive quarters where gross domestic product is negative, so we don’t know if we’re in a recession until after it has already happened,” Dr. Sturtevant explained. “What we do know is that recessions are often closely linked to unemployment, and we are currently experiencing a lot of job loss in this country.”
 
Sturtevant assumes that if unemployment numbers continue to rise and reach the 10-15% level, such conditions will have a major impact on the housing market. 
 
The current impact that we’re seeing across the country, however, is variable across markets. This variability depends largely on how robust individual markets were prior to COVID-19 and how local and state governments have dealt with shelter-in-place orders.
 
There are current trends that we’re seeing here in Virginia. In a survey sent to members across the Commonwealth, Virginia REALTORS® found that 90% of respondents said that COVID-19 is negatively impacting their real-estate business. 
 
“This is most directly related to people postponing or delaying their search for a home, or sellers not putting their homes on the market due to COVID-19,” Sturtevant explained. 
 
While there are trends that we need to continue watching, economists agree this potential recession will be much different than what we experienced in the 2007 and 2008 economic crisis. 
 
The crisis that began in 2007 was closely linked to subprime mortgage loans and resulted in the bursting of the housing industry’s asset bubble. Since the financial crisis was so closely associated with the housing market and questionable lending requirements, home values dropped drastically and foreclosure activity dramatically rose. 
 
But the current economic downturn is driven by a public health situation rather than conditions within the housing market, Sturtevant explained. 
 
“The realities of the 2007 and 2008 economic crisis were exacerbated by 0% down payments and balloon payments, along with an increase in housing inventory, and these are not realities in today’s markets,” Sturtevant said. “So this downturn is going to be quite different.” 
 
The strength of the housing market prior to COVID-19 was due, in large part, to a lower level of inventory and an increase in millennial-aged first-time homebuyers, which are still realities today despite this public health crisis. 
 
But the question remains: What will be the long-term impact of this economic slowdown and how will we rebound?
 
“The honest answer is that no one knows for sure, but there are specific patterns to be aware of,” Sturtevant said. 
 
One of the major factors will be when the virus is contained. New data suggest that the peak in the number of COVID-19 cases in Virginia is ahead of the predicted timeline, which could potentially mean that the virus will be contained earlier than anticipated. The earlier the virus is contained, the more quickly the economy will rebound. 
 
The second major factor to track is unemployment numbers and whether the implemented federal stimulus measures help mitigate economic disruption. 
 
Whether the federal stimulus measures work—and as a result, businesses are able to ramp back up and people are able to return to their jobs—will largely determine if we see a sharp turnaround and a recovery of employment, Sturtevant explained.
 
However, if unemployment claims continue to rise and it takes longer to contain the virus than projected, then we are likely looking at a slower recovery that could have longer-lasting impacts on the economy. 
 
Despite the lingering unknowns, the important thing to remember is that the state of the economy and the housing market were both strong prior to COVID-19, and this will be beneficial for our economic recovery, Sturtevant said. 
 
Funkhouser Real Estate Group is continuing to follow these trends and we will provide updates as we learn more; but currently, the Shenandoah Valley real estate market is showing different trends than other markets in Virginia. 
 
While surveys have shown a decline in activity statewide, associates at Funkhouser Real Estate Group have remained relatively active as properties are still going on the market and contracts are still being signed. 
 
“While some markets are seeing a great impact on activity due to COVID-19 restrictions, others are seeing very little, and so far, the Shenandoah Valley has experienced a small impact on the real estate market,” Kemper Funkhouser, COO of Funkhouser Real Estate Group, explained. 
 
Additionally, we are not currently seeing any signs of home values dropping, nor do we expect this to be a major result from this latest economic downturn. 
 
“Our firm is very active in working with buyers who are making offers and sometimes facing competition to secure the home they desire,” Kemper explained of the current state of the company. “We are also working with sellers who are enjoying multiple offers within days of listing their home. While this is not the experience for everyone, the market is very active.”
 
The area is growing and the number of potential buyers has increased over the years, outpacing the number of homes on the market. So, despite any slow-down in activity, there still remains a steady number of active buyers looking for homes. 
 
As conditions continue to potentially change, including loan requirements and the fluctuation of interest rates, the importance of having local and professional guidance when buying a home has become paramount.  
 
“Professional expertise from a local REALTOR is more important today than ever before,” Funkhouser said. “In times of market changes, it is essential to have a local expert who can guide you with accurate and timely information to make informed decisions.”
 
This is why our focus at Funkhouser Real Estate Group continues to be on the education of our associates, so that we can provide the best guidance to our clients during these times.
 
We are still holding professional development meetings online with our associates twice-a-week so that we remain up-to-date on new data and market trends. As we continue to learn more, we will keep you updated on what you need to know about the real estate market during COVID-19.