This is the million-dollar question asked by both clients and colleagues. When will there be some “normalcy” in the market?
In the wake of the 9/11 attacks, we saw the Fed cut interest rates, followed by consequent increases in signed contracts. Median prices were stable for around six months, before rising 11% in the following year. Within two years, the market had experienced a full recovery (and then some).
The 2008 housing crisis was a different story in terms of the severity of the situation. Following the failure of Lehman Brothers, the number of signed contracts dropped almost 50%, and median prices were down by 10% in just the first three months.
The Fed cut interest rates again, and the government offered first-time buyer credits to incentivize consumers. Thanks in part to measures like these, within two years the number of signed contracts had reached their original level, and median prices were actually 8% higher.
Now, what sets these events apart from our current economic predicament? For starters, in the previous examples, there was an end in sight and a clear path forward.
The economic fallout from 9/11 was a reaction to a tragic, but isolated event. The 2008 housing crisis, while far-reaching in its negative effects, was not unprecedented. Like before, the Fed has cut interest rates – and the government has stepped in to offer emergency loans to eligible small businesses.
What makes this global pandemic so difficult to predict is the sheer uncertainty of what is coming next. Industry experts have expressed that if the coronavirus turns out to be short-term severe disruption, buyers are unlikely to see deep price cuts for a prolonged period of time.
This assumes a broader reopening of the U.S. economy in a shorter period. As business and the economy reopens, consumer confidence will rise and employment opportunities will follow. It is then we could see a normalization of the residential market.
If you have questions during this time, please reach out. I would love to be a resource to anyone in the lending space who is looking for feedback on their current approach.