Fears of Coronavirus Affect Housing Market

• Author: William Asher
• Posted: 2024-04-05

Stories of people fearful of the Coronavirus are falling one on top of the other as panic spreads around the globe. Many restaurants have seen their patronage dwindle significantly, while panic at airports, especially dealing with Asian destinations, reaches a fever pitch. The stock market has also been dealing with some alarming drops, which is creating a domino effect of panic, as retired seniors and other investors fret about losing their money. Though there's another area where this panic is reaching: The housing market.

The stock market dips are attributable to investors who are a little skittish about how the global economy will perform during an outbreak of panic. This fear trickles out to regular folks, spreading like the seismic shocks of an earthquake. At its epicenter, big investors too fearful to put their money into the market. At its borders, regular people who buy and sell homes in private industry who dictate the health of the housing market.

Right now, the housing market is experiencing a significant downturn, and fewer people are deciding to put their homes up for sale, while just as many people are considering saving their money rather than taking on mortgage payments for new homes.

The housing market is the one financial area that is able to perpetuate panic until which point a crash could cause sweeping disaster. The issue is that too many people remember the period of 2008 through 2012, where millions lost their homes, billions of dollars were lost, and we had a full-fledged global financial crisis, brought on by the housing market via sub-prime mortgage lenders.

The irony here is that the same people who fear experiencing another crash like those levels of a decade ago might themselves be contributing to that possible result by following investors' lead of panicking over the Coronavirus. It ends up being a pretty vicious cycle.

The Real Interesting Intrigue of the Market

What we see happening already is that interest rates fall as investors keep their money out of the market. While on its face this seems like a good thing for homebuyers and those paying mortgages, the fact is that it signals a weaker housing market, and banks and firms will panic and make sure that those adjustable-rate mortgages adjust on the high end, and many people will be unable to make their monthly payments.

This is essentially how the housing crisis reached its zenith a little over a decade ago. The market was weak, and many people could not afford to pay their sub-prime mortgages. To cover those financial losses, lenders whose mortgage holders signed for an adjustable rate started adjusting those rates, hoping that forcing the people still paying to pay more would cover their losses. This backfired, and many more were left unable to pay, which meant that financial institutions had to eat losses in the billions, which had a reverberating effect on the entire financial industry.

Sure, the entire collapse, start to finish, is a bit more complex than that. Though for the housing end, it was the initial financial hit that caused panic and spiking rates and a snowball effect. This is what some experts fear with this virus panic: Rising interest rates that cannot be paid, due to failing rates from lack of investment confidence.

The Legitimacy of Housing Panic

It's scary just to think about, which is why it undoubtedly causes so much panic, but the housing market is one of the most fragile markets there is. This is primarily because large financial institutions still hold the notes on private mortgages, even though we have already seen this movie play out. Amazingly, nothing that caused the 2008 collapse has really changed at all. It's still fragile, and a small bit of panic from investors in the stock market causes interest rates to become weaker, which has a spiraling effect on the market.

This is also compounded by the fact that many fears over the Coronavirus are hurting the real estate market on the private industry side of things. Many people feel entirely uncomfortable with putting their homes up for sell, not wanting to give up any stability they have while also fearing they will not receive the best possible price. And home buyers are also pinching their pennies a bit tighter for a few reasons. Not wanting to risk a big investment, not wanting to make a big change, and what's stinging worst of all, the weaker interest rates from on high driving up premiums on new mortgages.

If the world's financial market has any luck at all, the housing market will bounce back. However, all the beginning signs are there for another long-term downturn.