In real estate news this month, housing inventory in the US continues to dry up, and home prices have been trending higher. Notably absent has been mention of how a potential spread of the Coronavirus could impact the residential real estate market.
Last month, China started to lock down cities in an effort to stop a Coronavirus outbreak. Transportation was limited and strict travel restrictions were put in place. Families quarantined at home, with one designated person allowed out every couple days for essential household supplies. Since then, all companies deemed “non-essential” were shut down, and schools were closed.
Today, the Coronavirus is no longer limited to just mainland China. Cases started to crop up not only in neighboring Asian countries, but in large numbers in Italy. If an event of this scale were to happen in the US, it would most certainly have an impact to our local markets, including real estate.
Real estate has traditionally been more of a slow-moving machine, compared to stocks. If the US were to see similar outbreak and lockdown trends as China and Italy, and if those negative impacts were protracted, there will be severe pressures on tenant ability to pay rent. The residential sector has always maintained its “hardy” reputation in times of market downturns and has historically outperformed other asset classes in terms of stable operating cash flows, but it is not immune.
Overextended and highly leveraged investments could face serious portfolio risks. Lower-income rental properties not supplemented with rental assistance, located in cities where tenants are more vulnerable to unemployment impacts will be hit hardest by events such as the Coronavirus. That said, volatility in the equities market will further support the case for portfolio diversification into real estate. Supply will continue to play a strong factor in asset price. Those looking to preserve their wealth will find that investing in growing areas supported by a healthy and diverse economy can still provide safe haven in the face of market turbulence. Today, more than ever, we urge everyone to invest their capital wisely.