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The Covid-19 Economy: Real Estate

2020 has upended economies worldwide thanks to the cataclysmic coronavirus crisis, which has necessitated the shutdown of entire economies as nations struggle with illness, death, and containment. No nation has seen greater infections or greater casualties than the United States, which has demonstrated a haphazard approach of both shutdowns and potentially premature reopenings, piecemeal among the fifty states, as the federal government struggles to both formulate a coherent approach while muddling through the politics of a presidential election year. Throughout the spring, historically dependable investments have proven shaky while more innovative investments such as Bitcoin have steadfastly outperformed even tried-and-true gold. The recession into which the US appears to be sliding (as is the EU and many economic zones the world over), bears some resemblance to the 2008 Financial Crisis, but is predicted to prove potentially worse. That crisis predated Bitcoin and may have been the catalyst for it, while this one may cement cryptocurrency into the minds of younger investors as a smarter investment and institution than those that prior generations clung to. As in the 2008 crisis, the US real estate market is in the midst of a nosedive. 

The lockdowns in the US have resulted in appalling unemployment numbers, which have begun to affect the real estate market. Home sales are at a nine-year low and staggering numbers of homeowners are defaulting on their mortgages, while renters are unable to pay the rent that may translate into mortgage payments by landlords. Existing home sales plunged 17.8% in April, according to the National Association of Realtors, a percentage decline outpacing any since July 2010. That month was in the midst of the subprime mortgage crisis, upon the expiration of the homebuyer tax credit. Not only did some homeowners change their minds on listing properties for sale, but some already on the market were pulled in favor of more promising days, resulting in a 19.7% inventory figure fall annually in April, to 1.47 million units. This trend has pushed the median price of existing homes sold in April to $286,800, and while the 7.4% rise from a year earlier may appear promising, such appreciation is not healthy for the overall housing market. The only way for it to balance out is for listings to grow dramatically, as well as for new home construction to blossom. However, housing starts plummeted by 30.2% in April and permits for future homes dropped 20.8%.

Predictably, the ballooning unemployment numbers have driven many homeowners to default on their mortgage payments, and a timely report by the UK-based economic forecasting firm Oxford Economics predicts that approximately 15% of property owners will fall behind due to the coronavirus, outpacing the delinquency rate of the Great Recession, which hit 10%. The national delinquency rate jumped from 3.06% in March to 6.45% in April, the largest single-month jump in history and three times the prior single-month record set in 2008. According to The Washington Post, during the Great Recession, it took 18 months before such an enormous single-month surge. Data from the Mortgage Bankers Association demonstrates that over 4.1 million homeowners, amounting to 8.16% of all mortgage-holders in the US, are in forbearance. This inevitably results in stricter borrowing requirements, with announcements of more stringent underwriting requirements and the discontinuation of some lending products entirely. 

The question for cryptocurrency is, will investors dump their coins and cash out, scrambling to cover rent or mortgages are unemployment figures worsen? Or alternatively, will this drive more investors who may have eyed real estate toward cryptocurrency as a more dependable investment in the new Covid-19 economy? 

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