Times of volatility create opportunities for investment—it’s true of the stock market and it’s also true of real estate right now.
Rarely was there such a sudden and universal jolt to housing markets in the U.S. as there was last month. In a matter of days, school systems closed, restaurants shuttered and a wave of stay-at-home orders extended from coastal states inward, as lawmakers raced to slow the spread of the coronavirus. Real estate agents called off open houses, sellers yanked listings from the marketplace and many buyers, even in some of the hottest housing markets, such as San Francisco Bay Area, put their house hunts on hold.
Recent directives from U.S. Homeland Security and some states like California clarifying that real estate, like garbage disposal and mail, is an “essential business” during the crisis has shown little sign of spurring agents, and, more importantly, their clients, to risk exposure to the disease.
Many people are playing it safe and staying home in the majority of states, either out of an abundance of caution or in response to local mandates that threaten violators with fines or, in some cases, license revocation despite the federal rule. On top of that, a total decimation of U.S. stocks, which closed the worst first quarter in history this week, have wiped out billions from people’s wealth.
Such uncertainty makes it hard to imagine an upside, but there very well could be for both opportunistic investors and end users looking for a home. Both types of buyer can—with a little savvy and “steady hands,” as one agent put it—use this sudden lull in activity to their advantage by securing a discount and seizing a moment of fewer, if any, competing bids.
Finding an investment opportunity
“Clearly some people are anxious to do business and so you’re going to get more flexibility in terms of price and in terms of people not hanging onto that last dollar,” said Alicia Cervera, managing partner of Miami-based Cervera Real Estate.
Recent deals show some sellers are in need of liquidity and willing to negotiate.
In New York City, the epicenter of the coronavirus outbreak in the U.S. with more than 45,000 confirmed cases and where people are under strict orders to stay home, only two luxury home sellers managed to strike deals last week. And they had an average listing discount of 33%, according to the latest market report from Olshan Realty, which compiles weekly contracts signed for homes over $4 million.
One was a renovated five-bedroom, two-story condo in Manhattan’s trendy Chelsea neighborhood, asking $11.25 million. The other was a four-bedroom apartment on the Upper East Side, asking $5.25 million, which the out-of-town buyer planned to use as a rental investment, according to the report.
Across the country, inventory has plummeted as sellers yank or put off their listings in order to wait out the crisis. In Manhattan, for example, only 63 new listings came to market during the fourth week of March (the first full week under stay-at-home orders) compared to 411 during the same period last year, according to data from real estate data firm UrbanDigs.
Anecdotal evidence suggests opportunistic buyers are already circling remaining inventory hunting for deals, said Noah Rosenblatt, founder of UrbanDigs, in a weekly report.
“The question then becomes, which sellers are willing, or unwilling but forced, to hit that bid,” he said, adding that so far, he’s heard sellers are largely biding their time rather than accept low offers.
Joel Moss, a broker at Warburg Realty in New York, recieved one such offer for 33% below the asking price on a one-bedroom in Murray Hill that she represents. The prospective buyer justified the bid as what one might have paid in 2012, at the depths of the last housing crash.
“Of course the owner said no. In fact, she found it a little predatory,” Ms. Moss said.
So in these times, how does a buyer go in with an offer that won’t alienate?
Ms. Moss said having a frank conversation with the listing agent about how motivated the seller is would be a start. But also hiring a buyer’s agent who has their own network of connections can help steer an investor toward potential deals. One area where there’s been surprising softness in Manhattan, for example, is the West Village, where even coveted townhouses are competing with a deluge of new development not far away.
“Sellers there have already adjusted their thinking on price,” Ms. Moss said.
“Everyone would love to get an offer,” she added. “But it needs to be reasonable and it depends on the price point.”
Red-hot markets starting to cool
Big discounts are only one part of the equation, however. The incredible slowdown in activity has taken the heat off of some of the most competitive markets in the country, giving an opening to buyers who only two months ago would have faced off against half a dozen other interested parties.
One such market is California’s Silicon Valley, where a typical starter home trades for $2 million to $3 million and often above asking price, said Kalena Masching, a Bay Area agent with Redfin.
“In February, it was ramping up to be a really busy spring season,” she said, reminiscent of the robust years of 2017-2018, when homes were selling for as much as 10% over asking. But shelter-in-place orders implemented across California in mid-March and a wipe-out in stocks, which first-time buyers in the Bay Area tend to draw upon for their down payments, grounded deals to a halt.
Now, homes are selling with discounts of $50,000 or more off their asking price, she said.
“There’s a great opportunity for investors,” Ms. Masching said, “especially for someone who’s ultimately going to tear something down.”
In that case, an investor has little need to see the property in person, she said.
Mary Lou Wertz, co-founder of Maison Real Estate, in Charleston, South Carolina, said the climate of uncertainty has brought negotiating to another level. Buyers are even asking for price concessions at the closing table, she said.
“I’ve never seen it before,” Ms. Wertz said, and sellers are acquiescing because otherwise the buyer is “going to walk away.”
Besides the hard-driving investor, however, multiple agents said the softened market provides an opportunity for people to take the plunge on the move they’ve been dreaming of but putting off.
In Florida, for example, Ms. Cervera said she’s seeing the same sense of urgency from New Yorkers, and other buyers from the tristate area, that she saw in the aftermath of 9/11.
“People are saying this has been my plan,” she said. “They are getting off the sidelines and wanting to fulfill those dreams.”