The coronavirus pandemic has jolted the U.S. housing market back to levels last seen during the depths of the Great Recession and is wiping billions in potential sales commissions off the table for real estate brokers.
A Business Journals analysis of pricing and supply data provided by Zillow Group Inc. makes clear the Covid-19 crisis has reversed what was shaping up to be a banner year for the residential real estate sector. As of April 5, daily new home listings had plummeted 27% nationally from where they were a year earlier, with some of the country’s largest and strongest markets seeing declines ranging from 36.4% in San Francisco to 56.6% in New York City.
Phoenix is one market, however, that’s bucking the trend on new listings as of April 5, showing a less than 1% drop compared with the same day in 2019. Where it was comparable with national trends is in was with total active listings, which were down 26.7% compared with a year earlier.
The active inventory numbers from April were an improvement for the Valley from March by about 1,500 homes. The March 1 inventory numbers were down nearly 33%. According to industry analysts and experts polled by the Business Journal, expect housing demand in the Phoenix area will slip but will begin to recover later in the year.
The fallout has immediate implications for the hundreds of thousands of real estate professionals who earn much of their annual compensation during the busy spring selling season. Nationally, the Business Journals estimated the drop in home listings could equate to as much as $81 million in lost sale commissions per day for real estate brokers, with major metros such as New York ($14 million per day), Los Angeles ($4.8 million) and Chicago ($3.8 million) topping the list with the most at stake.
Phoenix real estate agents would fare far better than their contemporaries in other cities, projected to lose about $53,572 per day in commission as an industry.
In most cities, the spring can account for as much as half the annual compensation doled out to brokers, listing agents and the various staff at real estate firms, according to data from Zillow and the U.S. Census Bureau. And the prognosis for a near-term recovery does not look great. Moody’s Investors Service said last week it was adjusting its housing outlook due to the coronavirus and is predicting home sales will fall about 25% below targets for the year.
The credit-ratings firm said the new forecast of 4 million unit sales would be on par with the lows registered during the 2008-09 recession.
“The spring home-buying season will be marked with few open houses and risks are rising that the early portion of the summer home-buying season will be uncharacteristically poor,” wrote Moody’s economist Brent Campbell.
It’s not all bleak
During an interview this week, Skylar Olsen, Zillow director of economic research, cautioned that all is not lost and signs point to a robust rebound when the U.S. economy regains its footing. Olsen also noted a number of significant differences between now and the housing crisis that was central to the 2008-09 downturn, namely that housing inventories already were tight leading up to the Covid-19 crisis versus the oversupply leading up to the last recession.
Homeownership rates also are much lower this time around: under 65% today versus roughly 69% in 2006, at the height of the housing market’s froth before the fall.
She said the demographics that contribute to longer-term trends in the housing market — when younger generations of potential homebuyers reach an age where they are willing and able to buy — will not change because of the pandemic. “This is a timing issue,” Olsen said.
Much will depend on the effectiveness of the federal stimulus and a willingness among banks to grant temporary mortgage forbearance for homeowners. Olsen said another variable is the unprecedented speed at which the housing market has contracted and upended an industry that largely eats what it kills.
“Of course timing absolutely matters for an individual,” she said. Olsen predicted the sector will see a broad contraction as the response to the pandemic plays out.
Real estate professionals already are driving creative ways to keep business moving. Drive-by appraisals and virtual open houses, whereby real estate agents stream live video tours of houses on demand, are now commonplace. Zillow said realtor-generated 3D photo tours of homes spiked 188% in March compared to February, with the last week of the month seeing a 488% jump over the average number created before the Covid-19 crisis ensued.
The company said such tours skyrocketed by 2,000% for landlords of multifamily properties during the same week in March.