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WEB EXCLUSIVE This weekend, North Carolina’s economy will take initial steps to reopening but we’re just starting to get a fuller picture of how the COVID-19 shutdown has impacted some local industries and markets.
In real estate, data from April from the Wake County Register of Deeds office show residential sales starting to decrease. Last month, the number of parcels transferred by deed in the county was down 13.3 percent from March of this year and down 11.8 percent from April of 2019; historically, the spring months of March through May are associated with increasing sales as families prepare to move over the summer while the weather is good and kids are out of school.
Charles P. Gilliam, Wake County’s Register of Deeds, tracks and compiles county real estate transactions daily. He says there are two things that could be going on. Though real estate is an essential business under Gov. Cooper’s executive order, sellers aren’t as likely to be showing their homes and buyers aren’t looking at them due to social distancing. And two, the economy, more broadly, has people worried.
“Driving around with a real estate broker and looking at houses cuts against the thrust of social distancing, as does allowing people in who might be sneezing in your house,” Gilliam says. “You just don’t know. The other factor is, people who don’t have to buy but are looking to—if they can get a good deal, in a place they like—they are now worried they may not have a job. Maybe their business is going broke. They figure now is not a good time to be plopping down capital and getting tied into property.”
This tracks with what local real estate brokers say they are seeing. Frank DeRonja, owner of DeRonja Real Estate located in downtown Raleigh, says despite a strong first quarter, his agency is seeing sales volume dropping off around 35 percent in recent weeks.
“Up until all of this we had an inventory problem for many segments, price point-wise, in the Triangle,” DeRonja says. “We have found a lot of buyers stepped away from the process and the same amount or more sellers have stepped away, too, so the inventory problem remains. Good houses at sellable price points are still seeing multiple offers.”
DeRonja says the local real estate industry has adapted quickly to the crisis with agents showing homes virtually and conducting the bulk of the sales processes electronically. The state association of realtors also acted quickly, he says, to provide tools and support for brokers to be able to do business safely.
But while real estate sales have declined in April, we likely won’t have a definitive idea of how much of a hit the residential real estate market has taken until the end of May, as the market is generally on a two-month delay. This means sales that closed in April were initiated in February or early March, before anyone realized the full extent and implications of the coronavirus. In the commercial real estate market, that delay will be even longer, with a fuller picture emerging mid- to late June.
“There is going to be pressure on the commercial real estate market but that will take a lot longer to flow through,” says Gilliam.
Though real estate sales are down, the data show that lending was on the increase in April, due largely, no doubt, to rock bottom interest rates and homeowners choosing to refinance to lower their mortgage loans. Potential sellers may also be taking out home equity lines of credit now in order to fix up their homes instead of listing them.
Gilliam says other factors could potentially be at play.
“People whose businesses have had to close may need to refinance now, to take equity out of their property in order to avoid going broke,” he explains. “They could be taking equity out of their homes and putting it into their businesses. Your small businessman, the person who owns the barbershop or small restaurant. If they happen to own property for their business, they may be refinancing or taking out brand new loans on existing property to raise cash. Certainly, there is a lot of capital tied up in real estate in Wake County and people are going to need to tap into it in order to survive.”
DeRonja says, while he expects the number of closings to continue to be fewer in May and June, the local real estate market will likely track with how quickly the economy recovers more broadly.
“In real estate, we are fortunate in that a transaction that didn’t happen in May or June still may happen later in the year, unlike buying a meal in a restaurant, for example,” he says. “If we have a really strong [economic recovery], then I expect to recapture some of these transactions that did not happen earlier.”
Raleigh and Wake County have an inherent advantage over other areas of the country, too, says DeRonja.
“Even through the Great Recession, we still had people moving here. Because of the attractiveness of the economy overall, the climate, the educated populace, it’s a dynamic and fun place to be. And that helps real estate through bad times.”
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