Home prices are inelastic even in normal times. There are large transactions costs, lots of paperwork and intermediaries, and for most people it is their main "investment" so they are loath to sell it at a discount.
Also, the Covid crisis has only been going on for about 6 months and there has been a number of large government interventions to avoid a financial crash. Most mortgage holders can get a deferral on payments simply by asking and if you are unemployed the increased UI benefits have made a big difference in keeping people afloat. I think prices may eventually come down, but this crisis is only in its beginning stage. I think it is simply too early to really tell.
However - even if everything goes awry and there are lots of defaults and a large migration out of cities, we could still end up with steady or rising real estate prices. Why? Because lower interest rates make it easier to service debt and rates are only going down.
I got my mortgage a few years back at what I thought was a killer rate - 4.25%, now I am seeing rates as low as 2.85%.
A simple example: The monthly cost of a $100,000 30 year mortgage at 4.25% is $492. The monthly cost of a $125,000 30 year at 2.85% is $517
Because of the change in interest rates I now have 25% more purchasing power at roughly the same monthly price. And that monthly mortgage amount is what really drives payment decisions. The sales price isn't so important - it's can I service the monthly payments, and with lower interest rates you can.
However - even if everything goes awry and there are lots of defaults and a large migration out of cities, we could still end up with steady or rising real estate prices. Why? Because lower interest rates make it easier to service debt and rates are only going down.
I got my mortgage a few years back at what I thought was a killer rate - 4.25%, now I am seeing rates as low as 2.85%. A simple example: The monthly cost of a $100,000 30 year mortgage at 4.25% is $492. The monthly cost of a $125,000 30 year at 2.85% is $517
Because of the change in interest rates I now have 25% more purchasing power at roughly the same monthly price. And that monthly mortgage amount is what really drives payment decisions. The sales price isn't so important - it's can I service the monthly payments, and with lower interest rates you can.