The coronavirus pandemic has a lot of people wondering what will happen next. We can only use our previous economic experiences to understand what this situation would mean for property owners and real estate investors. Here’s what real estate investors in Chicago should expect during the coronavirus pandemic.
Shift in Demand
The real estate market is expected to eventually shift to start having fewer buyers and more homes for sale. However, in real world time today we’ve seen the same low supply of housing before the corona virus pandemic started and only a modest dip in demand. Overall, this shift isn’t a fast over-night move from a seller’s market to a buyer’s market but a gradual transition over months to years of time. Once the market shift fully transitions, we will see that buyers will have the upper hand during real estate negotiations. There will be less demand for homes, so the sellers will have to be willing to sell at what the buyers are willing to pay.
Price Dip
With the unemployment rate at record numbers many homeowners may be losing income and might not be able to afford their mortgage payment. They will have to put their property up for sale and capture any equity they have before they are no longer able to make payments. Buyers and investors will have more negotiating room when it comes to traditional real estate purchases. Housing prices in general will not be increasing, and there will be a lack of demand for new construction homes since pre-existing homes will be readily available.
Distressed Sales
There may be a surge in distressed properties, which means real estate investors can pick up properties for less than market value due to forced selling. It is important to understand that IL is a judicial foreclosure state which means that the process for a bank to take possession of a property is much longer than other states with a different process. The local laws of Chicago and IL will delay the timing of these distressed properties coming to market. Once this occurs, housing prices in general will not be increasing, and there will be a lack of demand for new construction homes since pre-existing homes will be readily available.
Low Occupancy
Real estate investors that own short term rentals or vacation property rentals should expect to have extremely low occupancy rates while the coronavirus pandemic is going on. Most people will not be vacationing or visiting relatives while IL “stay home orders”. In addition, it is likely that many consumers may have lost some of their discretionary income needed to go on these trips. Most likely you will find that yourself lowering your rates to maintain a reasonable occupancy level. Even if you don’t receive your premium rent, you will be able to cover at least some of your expenses by reducing vacancy.
Eviction and Foreclosure Suspensions
Real estate investors in Chicago should expect to suspend any pending evictions and foreclosure measures on any tenants during the coronavirus pandemic. The last foreclosure auction sale in the Chicago area was on March 16, 2020. As previously mentioned, IL is a judicial foreclosure state which is a court-based foreclosure process. When the courts do eventually resume normal operation we expect considerable delays on existing court orders as backlogs will have overwhelmed the court system. Any property owners with mortgages that have also experienced unemployment may also not be able to pay rent on time and under normal circumstances would have foreclosure proceedings drawn against them, but during the coronavirus pandemic, these proceedings must be postponed.
Tighter Mortgage Lending
When lenders anticipate an increase in mortgage default’s they will start modifying their expectations of new borrowers which will make it more difficult in general to get a loan. At this point we’ve seen the biggest change in requirements made to the jumbo mortgage application which in the Chicago area is loans over $510,400. Many large banks offering jumbo loans have started to require borrowers have a down payment of at least 20% for the purchase of a home. Overtime we expect to see lenders to continue to increase their expectations of borrowers purchasing property.
This is an unprecedented time. These are what the real estate analysts are predicting to happen based on situations in the past. Please call Blue Ladder Development today at 630-387-6861 or send us a message to discuss what real estate investors in Chicago should expect during the coronavirus pandemic.