In a previous post, I estimated how real estate performs at various levels of a stock market decline. In my opinion, the sweet spot for real estate outperformance is somewhere between a 15% – 25% stock market decline.
During such a level of decline, mortgage rates tend to fall as investors buy Treasury bonds. As a result, real estate demand increases because affordability increases. Further, during a stock market correction, money tends to flow out of the stock market and into real estate and other more defensive asset classes like bonds.
Once the stock market declines by ~30 – 35%, real estate price appreciation tends to stall as potential buyers rethink their decision to buy any asset, including real estate. After a ~35% decline in the stock market, real estate prices are most likely falling as people fear losing their jobs.
We know that forced lockdowns have hurt the real estate brokerage business as potential buyers aren’t able to visit open houses and transaction volume declines as inventory gets pulled out of the market. However, please don’t confuse the real estate brokerage business with real estate prices.
When the real estate market eventually opens up again, sellers should negotiate for a commission discount while buyers should ask for a commission rebate. The coronavirus pandemic might finally be the catalyst to permanently lower commissions.
In this article, I want to present to you an example of how one property performed during a global pandemic and a lockdown. It’s an interesting example given the final sales price and timeline of the sale. I’ll then share a couple more examples.