Coronavirus Updates

Will the Real Estate Market Crash Due to COVID-19?

Expertise: Landlording & Rental Properties, Personal Development, Real Estate News & Commentary, Business Management, Flipping Houses, Mortgages & Creative Financing, Real Estate Deal Analysis & Advice, Real Estate Wholesaling, Personal Finance, Real Estate Marketing, AskBP, Real Estate Investing Basics
580 Articles Written
real estate investment small plastic property models on wooden surface with notepad, calculator, smartphone, male hands in view

Do you remember the Roadrunner and Wile E. Coyote cartoons? Roadrunner would somehow get Wile E. Coyote to run off a cliff, and he’d be stuck in the middle of the air. He wouldn’t even notice until he looked down—and then all of a sudden he would drop, right? It’s a very common kind of joke in cartoons.

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

I kind of think that’s where we are: We just ran off a cliff.

Related: 10 Ways Recessions Impact Real Estate (& How to Dodge the Worst of It)

And if no ground appears on the other side, if we don’t land on another cliff, we’re going to be in for a tough time. I think we are going to land on another cliff and not even notice that we went over it. 

If the virus comes and there’s a second round of everything—they shut everyone down again and this time for longer—yes, there’s a lot of bad things that could happen. But I think that we’re coming out on the other side. We’re going to land on that other cliff and be like, “Whoa! Did you see what we just went through? Did you see what we just did?”

And things will just get mostly back to normal.

Will the Real Estate Market Crash Soon?

row of several small wooden house models all are white but one blurred trees in background

Now, is there going to be an effect? Of course. We’re probably going to see prices drop maybe a little bit—that would be my guess. I think rents aren’t going to grow as strong as they were. I don’t think the prices of houses are going to grow as much.

But I don’t think we’re going to see a crash unless, again, that cliff doesn’t come up.

A lot of this goes back to how long this lasts, how long that space is before we hit the other cliff, you know, so we can be OK. And if we freefall, this theory goes out the window.

My thinking is this: Last time the recession was caused by real estate. Everybody knew it was caused by real estate and shady practices. Real estate fundamentally is still pretty strong. It’s still pretty good.

Recessions are built on fear, largely. And depressions, those are built on fear, too. And they’re how people feel about the economy more than actually any fundamentals. So right now, there’s a lot of fear. And that’s causing a lot of uncertainty and a lot of crazy times.

Related: The 4 Phases of the Real Estate Cycle (& What All Investors Should Know About Them)

I don’t think real estate’s going to be affected that much. I think that some people are going to obviously be out. They’re going to go bankrupt, they’re going to lose money—especially those in vacation rentals.

People who own vacation rentals in Maui, where their payment is $18,000 a month and they’ve been making $25,000 a month for the past 10 years on vacation rentals, they’re probably in trouble. If all of a sudden they have zero rental income and they’ve got to pay $18,000 a month on a mortgage payment to have a beachfront property, yeah. Those people are going to struggle right now.

It just sucks. It’s horrible. They got a bad roll of the dice. If they have to sell, for other investors, now would be a pretty decent time to start picking up those properties.

But that’s my guesstimate. I’d say I’m 85% confident that six months from now this is going to be an interesting memory. I don’t say good or bad—but an interesting memory of this time.

Do you think we’re heading for another cliff or falling into a ravine?

Share your thoughts in the comments.

Brandon Turner is an active real estate investor, entrepreneur, writer, and co-host of the BiggerPockets Podcast. He is a nationally recognized leader in the real estate education space and has tau...
Read more
    Christina Hall from Temecula, CA
    Replied 25 days ago
    Our Vacation Rental (drivable distance) in So Cal has exceeded all my expectations this year. Demand (avg price per night and occ) has never been higher. Sure, flyable destinations like Hawaii have suffered. However, if you own a VRBO in a drivable destination you are having a VERY good year.
    Jim Meloche Investor from Ann Arbor, MI
    Replied 21 days ago
    i can confirm this as a vaca owner of several properties in northern MI. we've never been busier.
    Eric Hughes
    Replied 24 days ago
    In my 18-property portfolio in Memphis suburbs, I haven't seen any impact so far -- in fact, both home and rental prices seem to have jumped. The demand is very strong on both sides. We're 6 months into it, so I doubt there's going to be any big long-term impact on real estate. (At least for residential -- commercial is another story.)
    Melissa Wesling Investor from Chicago, IL
    Replied 24 days ago
    It is very unfortunate about the vacation rentals in Hawaii. Many urban areas have had less occupancy at vacation rentals as well. Rural areas have an uptick in rentals as people look for staycations that are driving distance from home. The "flexcations" are leading us to have our best fall rental season ever in southwest Michigan, which is primarily a summer season. My fingers are crossed that the state doesn't shut down again and restrict vacation rentals. I am thinking optimistically and project that we are headed for a ravine, not another cliff. It sure has been a rollercoaster...and at the end of the ride it will hopefully be a smooth stop as we move on to the next fun adventure!
    Chris Gawlik Investor from Yucaipa, California
    Replied 24 days ago
    I think there is still so much uncertainty. No one knows whats going to happen. There are massive amounts of evictions piling up. If congress does nothing about this problem then yes, there is going to be a huge amount of inventory hitting the market, and probably some really good deals. Congress doing nothing is probably not going to happen. Its how soon they act on the evictions that will tell how bad it gets. Still so much uncertainty. What if some vaccines have bad side effects, what if like Brandon said theirs a second wave and extended closures, what if unemployment skyrockets again, what if, what if, what if. To many variables. No one really knows whats going to happen. You can take a guess, but all you can really do is just sit back, use what data you can as it comes out, and watch the show unfold. Right now, commercial RE seems to be in real trouble. We'll see what happens.
    Sean Rana New to Real Estate
    Replied 24 days ago
    As mentioned by other members, the economic uncertainty is still there, however, I don't think it will get worse. The most devastating period is already over. I believe this because the real estate market, like any other markets, does not like big surprises, and when COVID first was declared as a pandemic and started to rapidly infect millions, many investors and people in the real estate market got surprised. Buyers aren't sure of their moves any more. Investor's want to contract and save up on their properties and ensure proper maintenance, and sellers are more and more uncertain about selling. This behavior is what caused a big dip in the real estate world and caused a lot of damage. As we see, July has already recovered with regards to sales as well as the general growth of the real estate market. Home prices has increased due to a limited supply and a pent-up demand from buyers, and I am glad to say that most of these buyers are under 35 years old, meaning that the younger generations are still very engaged with the process of living on their own. On top of that, I believe that the market will be a lot more fair and flippers can take advantage of the new trends. Specifically, because of the lockdown, many are trapped inside their houses, and as a result, they will definitely prefer a more suburban setting with a bigger house in general and a patio in the back, rather than a small apartment in downtown Manhattan.
    Pranav G. Investor from Blackwood, NJ
    Replied 23 days ago
    Agreed with Chris Gawlik, Massive amount of evictions piling up. If it stays longer mom and pop landlords will start missing mortgage payments /Property taxes. Certain groups of Tenants are getting free ride. Local government is not postponing property taxes /MUA bills but they are delaying eviction.
    Craig Castro from Manteca, CA
    Replied 22 days ago
    Evictions are piling up, people who have asked for mortgage forbearance has piled up and if these two things don't get rectified I could see a wave of foreclosures hitting a year or so after those freezes are lifted. A lot of jobs are gone and aren't coming back due to COVID so I could see a temporary drop in prices once that storm hits. It'll be interesting to see what happens when those moratoriums are lifted.
    Brandon P. from Joplin, Missouri
    Replied 22 days ago
    My guess...Tons of foreclosures are going to crash the housing market in the next year or two. And then as the dollar crashes, the home values will skyrocket. Kiyosaki gives the dollar 5 more years before it’s gone. And the CDC says it’ll be 5 years before Covid is under control. 5 years seems to be a common theme.
    Ann Howard Investor from Franklin, Michigan
    Replied 21 days ago
    I don't think you'll see major inflation in home prices because with such high unemployment and uncertainty, banks will constrict their lending standards. Cash will be king. Prices will deflate.
    Glen E from Savannah, Georgia
    Replied 22 days ago
    I tend to agree with this article in general. But it's been said, "all real estate is local". Some states have had a longer/harsher shutdown compared to other states, which has led to higher unemployment. The states with the highest unemployment will tend to have the worst problem with housing. As of July 2020, 7 states have an unemployment rate over 13%: MA, NY, NJ, NV, CA, HI, PA. 11 states have an unemployment rate between 10-13%. 32 states have a rate under 10%. I live in one of the latter states, and I own 8 single-family rentals. None of my tenants has missed or been significantly late with a rent payment (and I believe all my tenants have had continuous employment). But if I lived in one of the 7 states with highest unemployment, my rentals may have had a different experience the past few months. Also - There are (at least) 7 companies that currently have a coronavirus vaccine phase 3 trial going. If one or more of them is successful and there is a coronavirus vaccine available by early to mid next year, I think that society including housing will get back to (mostly) normal. Yes, there will be some businesses that never open again, and some foreclosures, but I don't think it will be catastrophic. But if all the current vaccine trials fail and we have to wait 2+ years for a vaccine, all bets are off.
    Anjanette Vanessa Delgado
    Replied 22 days ago
    Jesus. An opinion piece with no foundation or reason. I think this and that without ever saying why I do or don’t. Wasted reading space with no meat so people comment and provide the content. Not a good look. I hardly ever comment and in five years, it is the first time I am annoyed enough to complain. Hope it’s useful and somebody listens. This site is better than that. At least thus far.
    Brian Tome from Elkton, Maryland
    Replied 22 days ago
    Totally thinking the same thing @Anjanette!
    Maria E. Cain-Prince
    Replied 22 days ago
    This article left me with the same feeling.
    Mike Hartzog Lender from Redmond, Washington
    Replied 22 days ago
    The future of the housing market depends largely on what the fed does. Right now, the fed is buying treasury bonds, which increases the money supply, and pushes interest rates down. This has the dual affect of juicing the stock market and supporting the housing market. Stock prices are increasing because rates on T bonds are very low and so more money moves into securities in attempt to capture a better yield on capital. Housing prices are supported due to the lower monthly mortgage payments that are available due to the very low mortgage rates we are seeing right now. All of this new money in the economy has not yet created much in the way of price inflation because the demand side is low, i.e., high unemployment and general lack of confidence in future economic conditions are reducing spending generally. The fed has stated that they want to get the inflation rate above 2%. Once we are past the pandemic and more people are back to work, the inflation rate should increase due to increased demand for goods. The extra 3+ billion in the money supply (probably 4.5B or more by then), which essentially devalues the currency, will also contribute to an increase in prices. At some point, inflation could get beyond the 3% upper bound of where the fed wants it to be. In that case, they will likely need to start buying back treasuries to reduce the money supply, which will in turn cause mortgage rates to rise, thus making housing more expensive to buy with a mortgage loan. So, we have these two forces in play to think about down the road; the affect of increasing mortgage interest rates putting downward pressure on home prices, and the affect of inflation which will put upward pressure on home prices. Some believe that the inflationary affects of the stimulus we have seen (and will likely see more of) goes beyond the ability of the fed to reel back in. In other words, inflation could get out of hand and the fed may not be able to stop it. In this case, owning real estate with low rate mortgage loans will be an excellent position to be in. The decreasing value of the dollar will make existing mortgage loans effectively smaller, and these inflationary pressures will push up rental rates, resulting in excellent returns on rental RE. The question is, when inflation finally kicks in what will happen with housing prices given these two opposing forces (increasing interest rates and decreasing value of the dollar). I don't know the answer, but I suspect that inflation will drive housing prices up first, then the fed will respond and force interest rates up, which will level them off or drive them down again, at least for a time. Bottom line for me anyway is that I want to have capital in RE with low interest mortgage loans.
    Prempal Singh from Lake Zurich, Illinois
    Replied 20 days ago
    Mike, you stated in the first few lines, that Fed buying Treasury will increase the money supply. And the contradict it later in the middle of you paragraph, that the Fed buying Treasury will decrease the money supply. Can the same action have due impact. Maybe under different circumstances. Also, it is my understanding FED's charter is to control the inflation, which they have been doing deligiently for a long time. What make you think they would fail now, and the inflation could go out of control. What data indicates that? BTW, thoughtful analysis overall!!
    Lev Palei
    Replied 21 days ago
    Very few experts expect any significant spike in inflation. The market now clearly signals that inflation will remain low for a very long time. In fact, some worry about deflation instead. So, you argument is about an event with very low probability.
    Mike Hartzog Lender from Redmond, Washington
    Replied 21 days ago
    There are experts on both sides. I am not sure either way given all the factors at play, but I don't believe we can increase the money supply by as much as we have and expect no impact. Over the past 3 months the dollar index (DXY) has dropped from ~99 to ~92.5. Warren Buffet has recently put 500M in a gold mining company, and the price of gold has gone up considerably in recent months. Gold is used as a hedge against currency devaluation, so there are plenty of folks worried about it, including some central banks. We will see what happens...
    Mark F. Rental Property Investor from Bergen County, NJ
    Replied 22 days ago
    Your comment was better than the article.
    Kevin E Hall from Buford, GA
    Replied 22 days ago
    @mikehartzog this was a great analysis. Thanks for sharing
    Josueth Irigoyen Investor from Miami, FL
    Replied 22 days ago
    Hey Brandon, sometimes I had the same thought, but sometimes I see the real world through my window and see the huge effect of this crisis that is really big, nobody knows, but I thing everything depends on future credit availability, in other words, the Fed’s incentives creation on the coming months, as an investors we have been prepared for every possible scenario, there’s always a big opportunities
    Cate McConnell
    Replied 22 days ago
    @Mike Hartzog your analysis is excellent. To evoke a NASCAR analogy, no one knows whether the Fed pushing the gas and the pandemic stepping on the brakes simultaneously will let us bank this curve and come out faster in the straightaway. We just haven't been here. But, Jay Powell's August speech was a warning to savers - inflating is coming, so get into assets like equities and real estate. So inflation may be the one that wins. I've been listening to long term investors like Sam Zell. He says you have to know your market (duh.) He also says it's much too early for deals. Of course, there will be commercial RE (retail/office) deals to be had, likely next year. There should be increasing softness in urban apartments, since they were somewhat overbuilt and now people want the house in the suburbs (and there is less AirBnB activity as cities canceled events.) But if you want driveable vacation property or SFHs, the market is fierce where I am in the Sunbelt. There's a type of journalistic story called "Look out your window and write about what you see." That's what Brandon did, but he why didn't use the BP big data that he touts is beyond me! I do agree with his takeaway - except for commercial space and perhaps some urban apartments, there won't be a crash. This is a completely different recession from the last one. I expect SFHs and MF to appreciate since savers will have to become investors in RE or stocks to get any yield at all.
    Curt Sturm Investor from Los Angeles, California
    Replied 21 days ago
    Judging from what I'm seeing and reading from a number of so-called "real estate experts" the peak in housing prices has passed and the storm clouds are gathering on the horizon. Many RE investors wait for perfect info to make their decsions (because that's the way they were taught in school) However, if you're a real-estate speculator (not a long term investor) you won't be rewarded handsomely waiting for all the info to come in because by that time the price increase/decrease has already been priced in. In the real-estate speculation game, one's goal is to accurately guess/predict where prices are heading and place an informed bet accordingly. If you're betting home prices are going to continue to rise across the U.S. through 2022 (in a majority of markets. I'd say.... We'll good luck with that...
    Greg Gaudet Rental Property Investor from Pukalani, HI
    Replied 18 days ago
    @Brandon Turner 85% chance sounds like pretty good odds; does that mean we're proceeding with ramping up our flipping on Maui? ;)