How Do Real Estate Markets Perform During Viral Outbreaks?

How do real estate markets perform during viral outbreaks

Viral outbreaks like the Wuhan coronavirus can be scary if you're closely following the news. But the news tends to make everything scary. When you put the Wuhan coronavirus or other viral outbreaks in perspective, the chances of you getting the virus and dying from the virus are very small.

The real estate market tends to perform very strongly during viral outbreaks due to the following reasons:

  • Real estate is tangible and just doesn't go *poof* like stocks one day
  • Real estate provides shelter and utility
  • Real estate is less volatile and more defensive
  • Real estate benefits from asset class rotation when investors seek safety
  • Real estate benefits from lower mortgage rates, making affordability higher

Once the Wuhan corona virus hit, mortgage rates began to plummet as investors sought the safety of bonds. Real estate is very similar bonds in that it provides a steady income (rent) and attracts capital during uncertainty.

Real estate is absolutely one of the best asset classes to own during viral outbreaks, times of war, and other worrisome exogenous variables. When people are nervous and unsure, there is a premium placed on tangible assets that provide utility.

When A Viral Pandemic Hits, Refinance Your Mortgage

During every viral pandemic outbreak, the #1 thing every homeowner should do is refinance their mortgage.

Take a look at the chart below that shows how the U.S. 10-year bond yield collapse by 0.32% after the Wuhan coronavirus news started to really spread.

Mortgage rates collapse during viral pandemics

If you own existing physical real estate, you should absolutely refinance your mortgage to take advantage of lower mortgage rates. Mortgage rates drop during viral pandemics because investors flee stocks and invest in the safety of bonds. As bonds move higher, yields move lower.

I refinanced my primary residence to a 7/1 ARM at 2.625% for no fees plus a $220 credit. Check out Credible, one of the best lending marketplaces where pre-vetted lenders compete for your business. You can get free real quotes in under three minutes to compare and contrast.

Real Estate Market Performance During Viral Pandemics

When viral pandemics like the Wuhan coronavirus hit, savvy investors also jump on top of real estate opportunities.

First, let me show you the S&P 500 monthly price performance during previous global viral outbreaks in 2002 – 2003, 2006, 2009 – 2010, 2013 – 2016, and 2015 – 2016. As you can see from the chart, the S&P 500 performs quite well.

Real Estate Market Performance During Viral Pandemics

Now let's take a look at the U.S. National Home Price Index. Real estate prices also performed quite well through various viral outbreaks. The time when real estate prices did not was understandably during the 2008-2009 global financial crisis when homeowners were over-leveraged.

But starting in 2012, prices around the country began performing quite well. And in some areas like San Francisco, Denver, Seattle, Boston, Washington, DC and New York, real estate prices surged far past all-time highs.

Real Estate Market Performance During Viral Pandemics

The traditional way to buy real estate is to take out a mortgage and buy property in a local area you like. But this way takes time, requires a lot of leverage, and is expensive. If you already own a primary residence, it may require too much capital to buy another physical property in your neighborhood.

Instead, an easier way to buy real estate is through a publicly-traded REIT like Vanguard's VNQ or a speciality REIT like OHI and O. You can buy shares easily and cheaply from your online brokerage account.

Another easy way to buy real estate is through a real estate crowdfunding platform like Fundrise. In the past, individuals required millions of dollars or had to invest with an individual investor to be able to invest in commercial real estate deals across the country. With real estate crowdfunding, you can invest as little as $500 into a speciality eREIT.

I particularly like their specialty eREITs focused on growth, income, and regions across America. Fundrise is free to sign up and explore. Below are some examples of their past deals.

How Does The Real Estate Perform During A Coronavirus Pandemic?

Another great way to buy real estate if you are an accredited investor is through CrowdStreet. CrowdStreet focuses on commercial real estate in “18-hour cities,” those secondary cities that have lower valuations, high cap rates, and potentially higher growth.

Thanks to the growth of remote work, there is a multi-decade demographic shift towards secondary cities like Austin, Charleston, Salt Lake City, Denver, and more. CrowdStreet is also free to sign up and explore.

CrowdStreet - Real Estate during viral pandemics like the coronavirus

Real estate crowdfunding is a great solution for those of you who want to invest in real estate and want to diversify your holdings with specific types of real estate projects. Further investing in a REIT or real estate crowdfunding is nice because the returns are passive, just like the stock market.

Real Estate Markets Perform Well During Pandemics

As of February 4, 2020, there are roughly 17,000 cases of the Wuhan coronavirus and 380 deaths. The figures are moving every day and the numbers will surely continue upward.

Meanwhile, there have been an estimated 19 million cases of flu, 180,000 hospitalizations and 10,000 deaths in the U.S. this 2020 influenza season so far according to the Centers for Disease Control and Prevention. In a bad year, influenza has killed up to 61,000 in the United States alone.

Therefore, the Wuhan coronavirus numbers thus far are small when compared to those of the latest influenza strain.

Even though a viral pandemic can be scary, your chances of survival are extremely high, especially if you lived in a developed country like America.

Consider taking advantage of the fear by buying real estate and refinancing your mortgage. Years from now, you'll probably be glad you did.