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A Housing Market Within the Pandemic

What happens when a market—say, real estate—experiences a sudden drop in liquidity as the environment makes it much harder for buyers and sellers to actually transact?

In the Bay Area, we started sheltering in place in early March, and much of the work of showing real estate was considered non-essential for a full month before being cautiously lifted in early April. As you’d imagine, though, both the extended pause and social distancing guidelines have created a massive chilling effect on what would normally be a steady, expected ramp up in housing activity going into the summer; instead, Zillow is estimating a 35% drop in home transactions compared to a year ago. Of course, if you ask real estate agents—at least the ones cited in that article, and also the ones that aggressively send brochures to my mailbox—they simply want everyone to know that it’s actually business as usual.

Regular salespeople are already finding that the lack of physical, in-person social cues challenging in trying to close deals. Trying to sell real estate when prospective buyers are not permitted—or are greatly disincentivized—to even walk through a property just makes the job all the more daunting. I have noticed that more residential listings are now making use of extensive virtual tours, via something like Matterport, to let buyers get a sense of a home’s layout and space1. Other sellers, if they happen to be living on the property, have been game to livestream themselves walking around the property to accomplish the same goals in slightly less technical fashion.

That said, most buyers are unlikely to make a housing purchase without actually stepping inside the house. On top of that, for real estate markets that have been affected by foreign buyers like Vancouver, they’re also seeing marked declines in activity due to the shutdown of international travel. The silver lining may be that the lack of foreign buyers, combined with historically low mortgage interest rates, in theory should encourage more domestic transactions. Whether prices would end up pressured downwards depends on geography as well as good ol’ supply and demand, but early indictions suggest that sellers are opting to just pull their listings off the market instead of take a risk in uncertain times.

The other hammer to drop will be unemployment affecting rents and eventually mortgages. As I’m writing this at the end of April, there will be yet another deadline for these home payments on the 1st of May. Nationally, those one-time delayed $1200 stimulus checks, barely cover the average rent for a 2-bedroom; expensive cost-of-living places like the Bay Area suffer far higher rents. Mortgagors can request for a pause in payments via a forbearance, but there’s no legislation on what happens after a payments suspension; the worst case outcome is if the mortgagee somehow expects a lump sum aggregating all the deferred payments2. I listened a recent Planet Money podcast episode that highlighted yet another challenge: mortgage servicers who aren’t getting mortgage payments themselves are obligated to make payments to the investors who own these loans, and non-bank servicers do not have sufficient free cash flow to prop up their part of the mortgage stack.

But it seems inevitable that there will be some unwinding of rents and mortgages and the investors of those mortgages, leading to evictions and foreclosures and mortgage security downgrades. The question is really to what extent this will depress the housing markets as a whole, which is less of a concern right now when deadly viral spread and human lives are still the biggest issue, but gradually gets on top of mind as the economy tries to lift itself out of recession. The state of the housing market will be a lasting legacy of COVID-19’s long economic tail.


  1. For instance, this mansion on the Oakland Hills, formerly rented by one Golden State Warriors player Kevin Durant, is a fun virtual romp.

  2. Fortunately, after I wrote this, it looks like the Federal Housing Finance Agency has provided updated guidance that a lump sum will not be required.

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