Below is a list of the 3 types of listings that will perform the best while the spring market is on pause, in the event of a shutdown comparable to Italy or Wuhan. I think that we’re currently at the onset of what seems to be an interesting shift in consumer psychology, where the attentiveness to “hot spring market” narrative is being usurped by “lockdown” +/- “DJIA limit down”… it appears the media fear mongering is progressing.
I always encourage clients on either side of the table (supply/demand) to consider who is on the other side of the table when making a decision. Today, for sellers, that means one of two things:
- waiting out a potential shutdown
- trying to find the opportunistic buyers
1. Vacant property
Simply put, vacant properties are at an advantage because people are less afraid to enter them. While this sounds far-fetched today, in the event of a Italy- or Wuhan-style shutdown, is going to ramp-up fear, and make the idea of regular property viewings functionally obsolete.
The buy-side advantage on vacancy is that real estate bulls can leverage the opportunity to support their investment thesis. Vacant properties can transact quickly, pursued by buyers expecting a return to growth, and looking to capitalize on a demand shortage.
A vacant property can mean a lot of things, but in some cases, it means that the seller has already moved, and that means they likely have a deadline to meet for their sale. In these cases, expect opportunistic real estate bulls to be low-balling any vacant property they can get through.
There seems to be a whole new sort of context evolving around social distancing, and it's happening quite fast. Properties that are tenanted may suffer the most because there is an implied right to quarantine that human beings have, and landlords will not be able to force tenants to allow showings with 24 hours notice, given this new world we've entered.
2. Entry-level property
Properties that are accessible to buyer groups that are less likely to take the virus seriously, or who will try to use it as a buying opportunity (i.e.) millennials. I’m not sure if I’m being cynical by saying this, but I do feel like I've developed some cynicism with reports of uber drivers sobbing after taking groups of young people out to clubs and bars.
It seems like millennials have taken the virus less seriously by comparison to boomers - . I don’t think that’s necessarily a bad thing, and I do expect it to translate into the real estate market. I have seen a variety of cancellations this week for viewings and listings, but anyone following this logic is over the age of 50.
I would expect that February’s fear of missing out (FOMO) could perpetuate among entry-level buyers, and many will cleverly try to scoop-up the remaining inventory, operating on the assumption that anybody’s who’s still allowing showings during the lockdown is somebody who has to sell.
This phenomena would ultimately translate to a strengthening of the bottom of the market, and a gradual growth from the price floor, as we’ve seen since the dip of 2017. Challenges to this type of purchase will really only present problems when the underlying value of the property (the land) becomes less valuable, or if somehow, the function of construction costs falters from where it is, and the site improvements decline in value, too. This leads me to the final listing type:
3. Add-value opportunities
I honestly anticipate that you’ll see a lot of different opportunistic investment sentiments during a market shutdown, and this could be the biggest one. Investors who are relatively in touch with the labour economics of contracting right now are seeing reluctant homeowners and reluctant contractors simultaneously.
I believe a group of buyers will emerge looking to capitalize on a shortage of renovation demand by purchasing and putting small renovation crews to work during the shutdown. I expect that new-build jobsites will stay open, which is honestly one of the few saving graces that our economy will have, given that our GDP is 78% attached to housing.