Haven’t heard from me in a while have you? Yeah. There’s this little thing called the coronavirus that I am a bit preoccupied with. Can’t even see the damn thing but it gets around. If you’ve heard about it you’re probably wondering what the impact of the coronavirus is on the Chicago real estate market. So have I. So I started checking and thinking about it. Here is what I know and what I think.

Seems like the earliest indication of what is happening would be contract activity, which I normally analyze at the end of the month. However, the Chicago Association of Realtors does track it weekly and for the week ending March 7, 2020 there were 307 contracts written on detached homes, which is a 9.6% increase from 2019. (Note that CAR shows a vastly different percentage. I won’t bore you with what they are doing wrong but, trust me, they are calculating it wrong.) There was also a 4.1% increase (CAR got this percentage wrong also) in attached contracts written to 454.

So that doesn’t sound too bad, right? But things weren’t too crazy before March 7 and I would imagine that any buyers who were close to pulling the trigger would continue to move forward. It’s the buyers further back in the pipeline that might be affected. For instance, if you were just getting ready to start your search you might put it on hold. So we’ll have to check the contract numbers every week to see what is going on. Is there anecdotal evidence of buyers putting on the brakes? Yes, but that’s just anecdotal evidence. I like data.

We can look at the stock market for an indication of what it thinks about the real estate market. For reference, as I write this the S&P 500 is down 25% from it’s peak. All the peaks noted below occurred around the same time:

• Zillow is down 54% from its peak
• Redfin down 55%
• Realogy, parent of Coldwell Banker, Century 21, Sotheby’s International, Better Homes and Garden, and Corcoran, down 73% (are they going bankrupt?)
• Pulte Homes down 49%

The stock market is clearly worried about the real estate market.

Won’t Lower Interest Rates Help The Chicago Real Estate Market?

You would think so, right? Not so fast. Mortgage rates have actually risen over the last couple of weeks as interest rates have gone down. What’s that all about? Refinance volume is so high that the lenders can’t handle the volume so they did what any good student of Econ101 would do and raised their prices. In addition, banks and mortgage brokers began to have trouble selling mortgage backed securities – which might also have been related to the volume. See the NerdWallet mortgage rate graph below for what this has been looking like:

Wait a second! The graph didn’t look like that when I started this post. What happened? While I was writing this post the Federal Reserve announced a number of initiatives that included buying mortgage backed securities and supporting the commercial paper market. That drove down mortgage rates again – for now.

So, while there is no direct evidence yet of a negative impact on the Chicago real estate market from the coronavirus, the writing appears to be on the wall. This could spell doom for some of the more adventurous real estate business models out there like the brokerages that are offering bridge loans, interest free renovation loans, and the ibuyers. I saw an article cross this morning about one free spending brokerage cutting back their enticing loan programs. So there could be a bright spot in all of this for small, independent, low overhead brokerages like us that offer rebates and discounts if these big players pull back or disappear.

#RealEstate #ChicagoRealEstate #Coronavirus

Gary Lucido is the President of Lucid Realty, the Chicago area’s full service real estate brokerage that offers home buyer rebates and discount commissions. If you want to keep up to date on the Chicago real estate market or get an insider’s view of the seamy underbelly of the real estate industry you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.