The US Real Estate loss due to Coronavirus Could be a lot worse than combined damage by 1987 Crash, Sep 11 Attacks And 2008 Recession
Though the damage caused by coronavirus on US real estate is not felt as much as the tourism, airlines, automobile and the hospitality sectors, however, the experts warned that it is a matter of time before coronavirus crisis could send the American real estate sector plunging.
A report in FOX Business says that preliminary data collected in March shows that COVID-19 has started to negatively affect both buyer and seller sentiments — though not yet to a serious extent. Quoting figures by a survey recently conducted by National Association of Realtors, the report says that 78 per cent of 70,000 random samples were of the opinion that the pandemic has not changed homebuyers’ interest in their markets yet. That compares with 13 per cent who reported a decline in interest.
Of this 13 per cent, the maximum number of respondents are from California and Washington — the two states that were hit hard by the outbreak of the virus initially. However, Tom Barrack, the Los Angeles real estate tycoon and Trump ally, has painted a gloomy picture about the future of his industry.
Barrack feels that commercial property market is on the brink of a collapse.
As the American economy is reeling under the crisis, real estate is not far behind.
The real estate billionaire further said:
Almost every American will be financially challenged to a degree not experienced since the Great Depression.
Barrack made it very clear that the liquidity crunch in the commercial real estate market could cause more economic damage than — the 1987 crash, September 11 attacks and 2008 recession combined.
Mounting pressure from the pandemic has left the market for commercial real estate mortgage loans on the brink of collapse. If debtors aren’t allowed to restructure their loans, that could spark a domino effect as mass defaults hammer everyone from property owners and hoteliers to tenants and employees — he warned in a Medium Post.
Also this is a period of uncertainty and pessimism. The lack of certainty around the pandemic has encouraged some larger commercial real estate players to pause their acquisitions for the time being. Worried about overpaying in a declining market, Chicago’s Origin Investments has “indefinitely postponed” $241 million in apartment deals, according to a report published in Chicago Business.
Hence, things are bad at the moment with the stock market plunging and economy doing bad. Let us quickly glance at the potential coronavirus damage on US real estate markets—
Since most companies have facilitated for their employees to work from home and be productive, companies will slowly realize that they need to have big office space is not required and it may encourage more flexible, work-from-home policies.
Hence, the demand for smaller office areas might also increase. Also, demand for co-working spaces could decline as people will try to avoid networking with others in the office environment.
As the fear of coronavirus will play on people’s mind for long, people might just go for online shopping. As a result, large industrial space will be required to house inventory at distribution centres.
However, this might have a negative impact on retail space as people might avoid going to crowded malls, shopping centres, etc.
The impact of coronavirus will adversely affect buying and selling of homes. As the pandemic is playing havoc with the economy, interested buyers may just postpone their plans of being homeowners.
Hence, it is difficult to predict the future of the American real estate sector considering how the scope of coronavirus and government’s response seems to change every day.
Let us just cross our fingers and hope for the best and that the coronavirus damage on US Real Estate isn’t as fatal as on other industries.