The COVID-19 Pandemic And The Pacific Northwest Housing Market

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Governor Inslee recently expanded Washington State’s prohibitions on public gatherings in an urgent response to the COVID-19 contagion. Together with the spread of the virus itself, the latest prohibitions will have far-ranging impacts on the regional housing market and how brokers deliver their services.

Realogics Sotheby’s International Realty (RSIR) brokers are uniquely positioned to manage the rapidly shifting landscape, but the housing industry needs to exercise care and use sound judgment when offering and carrying out activities that for many have become second nature. For some spheres, this will be among the most fearful and uncertain times they have ever seen. Brokers need to speak and to act in such a way that instills confidence while remaining vigilant to the risks and social perspective.

The impacts on business will be behavioral (in relation to sales and marketing), financial, and market-related. With the majority of the US economy directly dependent on consumer spending, the prospect of a sustained downturn may very well lead to a formal recession, although most market pundits believe a recovery will occur in the second half of 2020.

“Widespread concern regarding COVID-19, business closures and quarantines will likely affect consumer behavior and our industry into the next quarter,” said Dean Jones, President and CEO of Realogics Sotheby’s International Realty. “Our brokers are already moving to where the market is moving next and preparing their clients with new policies and procedures. Our daily life is disrupted for now, but the market fundamentals will prove resilient. What’s most important is that our brokers, employees and clients exercise the precautions to stay healthy.”

The following observations outline the most significant impacts of recent market conditions and extraordinary measures by government:

Practical and behavioral impacts relevant to selling

No group marketing

With the Governor’s restriction being expanded to all gatherings of 50 or fewer except where social distancing measures are employed, some forms of marketing activity must for now be immediately suspended. These include all activities comprising group gatherings: events at restaurants, bars, personal homes, and other venues. In regard to such promotional events, the Governor’s restrictions are clear and need no elaboration. Even for events with fewer than 50 participants, the social distancing requirements make this kind of promotion impractical and introduce unacceptable health risks.

No open houses or group tours

Some brokers have raised the question of whether open houses should go forward. Until March 15, the implications of the Governor’s previous orders left room for open houses due to the slow through-put of persons through the sellers’ homes. With the Governor’s latest orders, that has changed. The threat level has been raised to the point that any contact, even that encountered in a typical open house, will unacceptably increase not only the level of exposure to the virus, but liability exposure of our clients and brokers. Consequently, until these restrictions are lifted by the public authorities, RSIR now strongly advise against our brokers offering or hosting open houses when marketing a home for sale. In their solicitations of listings, brokers offering to market homes that are expected to take longer to sell may explicitly offer to host open houses after the restriction on meetings is formally lifted by the Governor’s office or by whichever authorities have imposed such restrictions.

As of March 16, the NWMLS formally disallowed marketing of open houses until further notice.

Group tours of homes—i.e., sequentially meeting or from one home for sale to another—is necessarily impacted by the social distancing requirements. RSIR strongly advises against this practice until the Governor’s order has been lifted and the COVID-19 threat has abated.

Careful management of home viewings

Home viewings would not be subject to prohibition, but only under certain conditions. Viewings should be carefully scheduled to ensure that no more than one buyer or buying couple are shown through the home at once. If several are to be shown the home sequentially, buyers should remain outside, preferably in their vehicles, until all others have exited the property. Brokers should consider asking buyers to leave their children at home or schedule daycare during their viewings as appropriate. Brokers should also provide sanitizer and disposable (single-use) gloves and shoe covers at the door. As there are now supply shortages of these items, these may be difficult to obtain, and this may require other protective measures or impact scheduling of a viewing.

While there is no substitute for an in-home viewing, brokers are highly advised to post video walkthroughs and drone footage of their clients’ properties for sale. RSIR’s marketing staff can suggest vendors of these services.

Other traditional and non-traditional marketing

To pick up the slack, brokers should advise their clients to maximize those forms of buyer engagement that do not require interpersonal contact: internet marketing, including streaming video, social media, virtual tours and email campaigns; newspaper and periodical advertisements; custom publications; and traditional mailing campaigns. A seller’s permission must be granted to video their home.

Interpersonal contact

RSIR earnestly recommends that brokers and staff minimize all their face-to-face interaction with clients, customers, vendors, and all others, and strongly advise that all brokers and staff strictly follow the CDC’s guidelines for prevention: RSIR managing brokers and broker care staff are excellent resources for advice on how to expedite transactions with a minimum of face-to-face personal contact. The health and safety of RSIR teammates and clients are of the utmost importance—all need to be well to stay in the game.

Financial and industry sector impacts

Stock market turbulence

On March 12, growing fear concerning COVID-19 sparked heavy selling in the U.S. stock markets, reflected in a nearly ten percent decline in the Dow Jones Industrial Average (DJIA). This was followed on March 16 by a second sell-off attending the Trump administration’s virus-related banning of inbound Schengen travel to the U.S. This second crash amounted to a drop of about 13 percent in the DJIA. These were two of the six steepest declines in U.S. stock market history. Even on March 11, before the crash began, local tech company stocks were already off their recent highs: Amazon by 17 percent, Microsoft by 20 percent, Google by 21 percent, Facebook by 24 percent, and Expedia by 47 percent. Respectively on March 16, these companies closed lower by 5.37 percent (Amazon), 14.74 percent (Microsoft), 11.63 percent (Google/Alphabet), 14.25 percent (Facebook), and 21.44 percent (Expedia). These sharp declines will impact not only the funds and local investors who invest in these companies, but will directly impact those employees of these companies who have been relying on restricted stock units (RSUs) to qualify for home mortgages in the region.

Volatility, if not an outright correction in the stock market, immediately affects the sense of wealth, liquidity and confidence of consumers. On the other hand, some investors will seek to cash out of stocks and instead invest in real estate. As of midday on March 17, the DJIA was marching back in what’s been a rollercoaster ride for investors.

Industry sector effects

In response to the triple threat from the stock market downturn, COVID-19, and a coincident Russia-Saudi oil price war that threatens to flood the market with crude oil, Fed policy has moved swiftly to cut its benchmark lending rate to a range of 0-0.25 percent. This will ease up home lending, and will certainly be good news for prospective buyers. Contingent on savings and income, some buyers will benefit from even lower mortgage rates than before. However, the circumstances prompting this move were dire, and the gathering threats as well as the response will bear disparate impacts on many businesses and their employees. Let’s look at a few of these:

Prospective buyers employed by or financially invested in the following industry sectors may see their home-buying plans comparatively unaffected by COVID-19:

Software and engineering

Companies whose products facilitate remote working will produce gains for their owners, managers, and investors. Some software manufacturers and engineering consultancies have been at the forefront of arranging remote working environments for their employees. These companies will now reap the benefits, as their employees can carry on as before without interruptions of product or service delivery. Companies that continue to require face-to-face engagement will not fare as well.

Professional services

The virus strikes at the busiest time of the year for tax advisory accountants, and there will be impacts on the operations of attorneys and other consultants as well. Like real estate brokers, many of these professionals rely on interpersonal contact and group activity for business development and service delivery. There will be impacts on their operations and revenue which are difficult to foresee. Some may see revenue gains from advisory services relevant to crisis impacts.

Larger retail establishments and essential suppliers

Internet suppliers, wholesalers, and supermarkets are overwhelmed by residents stocking up on essential supplies. Some who can scarcely keep up with the demand are hiring additional staff. The outlook for these businesses is very good, assuming that their staff stays healthy and are not overwhelmed by the workload. Hardware and pharmacies will do equally well if they can keep goods in stock. These companies and their investors are expected to manage the current pandemic better than others.

Home buyers in other sectors may face extraordinary challenges over the next few months. These may include the following:

Small retail and food-and-beverage businesses

In contrast with larger retailers, the outlook for smaller establishments and their employees is grim. Although restaurants and coffee shops are allowed to continue offering their products for delivery and to-go, not all will be able to adjust their business models to this kind of service, and wait staff will likely be cut and slow to return when permitted. Small-scale boutique shops that do not sell essential goods will be under pressure to close their doors, as their customers’ discretionary expenditures shift to staples.

Travel and hospitality

All businesses built around hospitality and group events (venues, caterers, events managers, etc.) are facing a minimum two months without revenue. Hotels and casinos will be especially hard hit. For example, MGM has temporarily closed all their Las Vegas properties with effect from March 17. Some international flights to and from the U.S. have already been suspended (American Airlines has halted 75 percent of their long-haul flights), and the suspension of U.S. domestic flights is not out of the question. Canada has limited non-resident admittance (US citizens are OK) through its borders and other countries will likely follow suit.

Government and public service workers

All schools in the state, public and private, were effectively closed by the Governor on March 12. The ban on gatherings and its effects on business activity are going to impact government revenues; and while some of these may be offset by U.S. federal government initiatives, there will be enormous pressure on public servants with little if any compensation for their efforts. Hospital staff, law enforcement, and first responders will bear the brunt of this crisis. The impact on parents now faced with caring for their children, not to mention meal planning, will also prove to be very disruptive if not unmanageable for many.

Effects on buyers’ geographical market preferences

RSIR anticipates different effects on buyer interest geographically. It is impossible to reliably predict the overall impacts on these markets, but insight is offered into the behavior of certain types of buyers.

The urban core

Prospective buyers downtown are likely to include bargain hunters seeking to obtain properties at a discount from fearful sellers. RSIR can help buyers to screen and select target properties, and advise sellers on negotiation strategies that maximize their returns. New developments offering presales may increase the incentive to purchase months or years ahead of delivery.

Suburban areas

Buyers in these areas will be looking for neighborhoods that offer resilience, community support, and strong public services. Within the constraints of the Fair Housing Act, RSIR can advise these buyers on the comparative resources locally available in different areas and neighborhoods. Sellers benefit from RSIR’s strong insights into what activities lead to successful closings in these areas.

Exurban and rural areas

Some buyers may consider this a time to seek more open space, or a refuge far from the city center. To these buyers, RSIR offers knowledge and familiarity with the numerous smaller towns and enclaves along the edges of the Central Puget Sound region. RSIR’s access to a wider realm of marketing channels allows sellers of homes in these exurban locations to raise the visibility of their properties for sale. RSIR noted that active and pending sales in Island, Jefferson, Kitsap, San Juan and Skagit Counties have nearly tripled since the coronavirus outbreak in 2020 compared with the same period over prior two years.

Special feature properties

Finally, the crisis may be a catalyst that prompts some buyers to reach for a long-held dream of a ranch, seaside, or mountain retreat. RSIR’s brokers are equally familiar with these markets and are ready to help buyers find properties that uniquely fulfill their dreams. RSIR’s brand and experienced brokers provide sellers of these properties with exceptional value in connecting them with these buyers.

Conclusion: be safe, have confidence

This is going to be a time unlike many have seen before. RSIR urges consumers and brokers to protect themselves, but also to share confidence in managing these circumstances and in seeking out the extraordinary opportunities that await.

“As with all market adjustments, we’re reminded to monitor the curve, be it V-shaped or U-shaped,” adds Jones. “We will be in and then out of these influences eventually. Any difference may prove to be relatively nominal when looking out over a longer period but it’s times like these when it is best to be working with an experienced broker.”

Header Image Courtesy of Governor Inslee’s office.