We are still funding in cash! The 2020 summer Olympics in Tokyo have officially been rescheduled to 2021. As the world copes with the Coronavirus pandemic, cities and countries around the world have shut borders and ordered stay at home orders to stop the spread of the virus. What does this mean for real estate? How long will this last?
What happened?
The Coronavirus has ravaged the world forcing 2020 summer Olympics’ organizers to scrap the 2020 summer games and move them out one year. Countries around the world had called for boycotts of the games as there were fears of once again infecting the world with the virus. The moving of the 2020 summer Olympics signifies a radical shift in the world order as countries impose strict entry provisions into their countries. For example, to travel to China, they are enforcing a strict 14-day quarantine for anyone entering the country. Other countries are doing the same. Can you imagine trying to take a trip and spending 28 days in hotels in quarantine?
The efforts to contain the Coronavirus will cascade through the world even after the delayed 2020 summer olympics. Countries like Australia and New Zealand are banning any foreign visitors and the normally porous border between the United States and Canada has been severely restricted. Economies around the world have been built on the unfettered movement of people. The virus has upended these assumptions.
How big of an issue for the United States?
Last year 80 million international visitors arrived in the United States. Over a third of these visitors were from Asia or Europe (source trade.gov). In total international visitors spent 155 billion in 2018 (source usatravel.org).
Furthermore, foreign buyers closed on $153 billion worth of U.S. residential properties between April 2016 and March 2017, a 49 percent jump from the period a year earlier, according to the National Association of Realtors. That surpasses the previous high, set in 2015.
Foreign sales accounted for 10 percent of all existing home sales by dollar volume and 5 percent by number of properties. In total, foreign buyers purchased 284,455 homes, up 32 percent from the previous year. Chinese buyers lead the pack in regards to number of purchases (source CNBC). The purchases by foreign buyers have basically stopped due to the virus which will no doubt put a dent in real estate in select markets.
Impact on real estate
The quick halting of international travel will cascade throughout the world economy and impact real estate in the United States in two distinct ways:
- Less international visitation: this is the obvious one, you will see international travel decline to basically zero very quickly as countries seal up their borders. Even as the virus subsides in places like China, there is a growing concern for reinfection which is causing the mandatory quarantines. The United States will likely follow suit as the virus comes under control and steps are taken to prevent. Furthermore Hawaii recently implemented a quarantine on all travelers coming to the islands for 14 days. Less visitation means not only less income in the local economies, but less opportunity to sell real estate
- Sales declines: As international travel is crimped, there is no doubt sales will be affected throughout the country, the question is will international buyers totally stop due to the restrictions on travel or will it be cut in half, or some other amount?
A silver lining
With international travel declining from abroad, US travel abroad will also likely decline for similar reasons. This should lead to more domestic travel, instead of the trip to Italy, Aspen might be an alternative or even Orlando… you can always go to “Italy” in Epcot 😊. Look for popular United States destinations to pick up more domestic travelers.
How long will this last?
Unfortunately, this looks like it will last a while. Currently the epicenter for the virus is the NY area, there are local and federal orders for people who are in the area or visited to quarantine for 14 days. The irony of this is that the airport is open. Let’s say someone was in NY and travels to Denver for a little fresh air, the mere act of getting on the plane, walking through two airports, taking public transportation, etc.. could infect hundreds if not thousands before the person could actually ever quarantine in a hotel or other location. Long and short, the United States is built on mobility and people freely move throughout the country. This will cause the virus to continue to spread.
Furthermore, let’s assume that a vaccine is discovered this year. How long will it take to make enough to inoculate the United States? On top of that, think of an area like Boulder, only 85% of kids are vaccinated for common items (like mumps, measles, and rubella). Are they going to be forced to get vaccinated to prevent another pandemic? Long and short we are in for a long slog with this new virus.
Cause structural changes
Unfortunately, we are in for a long slog; the Coronavirus will cause long term structural changes to mobility and ultimately economic models. This will affect both visitation of foreigners to the United States and vice versa. Ultimately real estate will feel the pinch from the international pull back. How severe the pullback is the million dollar question.
Resources/Additional Reading
https://travel.trade.gov/view/m-2017-I-001/index.asp
https://www.statista.com/statistics/214686/number-of-international-visitors-to-the-us/
https://www.cnbc.com/2017/07/18/foreigners-snap-up-record-number-of-us-homes.html
https://www.vox.com/2018/8/21/17588032/vaccination-rates-united-states
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide. To get started on a loan all we need is our simple one page application (no upfront fees or other games).