A Sign of the Times: The Effects of COVID-19 and Inflation on Real Estate
A lot has changed over the past two and a half years, and real estate is no exception. Even though business was still booming during the height of the pandemic, we can still feel COVID’s effects today through inflation and the waves of the market.
The effects of COVID-19
COVID shut down most of the world, but real estate wasn’t really interrupted. As a real estate professional, you are already nimble and able to work on the fly, so finding a way to work virtually was a breeze. This put real estate professionals far ahead of any other profession when it came to adapting to a post-COVID world.
Even though there were difficulties, especially with open houses and showings for buyers and sellers who were cautious about COVID, you were able to deal with them quickly and deal with them well. Real estate professionals truly rallied and got it figured out.
With low inventory towards the end of 2020 and through 2021, real estate professionals were working with multiple offers on homes with some offers being over asking price and waiving every contingency. These increased home prices meant more commission in your pocket.
Since most real estate professionals had such a great year, their revenues increased significantly. With increased revenue comes increased E&O insurance premium. Now that the real estate market is slowing down to pre-COVID levels, revenue has likely decreased, which means you could expect a decrease in premium next year due to the decrease in revenue. As you well know, the market goes up and down all the time, so we are likely to experience another influx of home sales in the future. We just have to be patient.
The pricing of inflation
We are living in a time of uncertainty. With COVID slowing down and prices inflating, we can’t be sure what to expect next. There is also more uncertainty with people deciding whether to move, so the price of homes is become more stable than it was previously. Those who would have entered the market to sell their homes before are deciding to stay put for now since their home value has decreased due to the higher inventory.
Interest rates were recently bumped up in an attempt to stabilize inflation. The high interest rates affect any buyers who are not paying cash. The more senior population remembers the high interest rates of the 1970s and 80s, but younger buyers only know low interest rates and are turned off by the increase. Whatever the perspective, buyers are feeling the cost of the high interest rates.
What we do know is that we’re starting to see things level off in the real estate market. Many buyers and sellers might be worried about another 2008 real estate crash, but since the cause of that disruption was different than where we are today, we’re not anticipating that to happen in the next year.
Where do we go from here?
The market has most certainly been cooling down recently. No one can know what will happen in the next year, but there have been predictions that the inventories will drop. If the inventories drop, resulting in decreasing commissions, that potentially result in a decrease in E&O insurance premium.
We never know exactly what’s coming, but we can predict the real estate market to continue to ebb and flow throughout the years. Through the ups and downs, Pearl Insurance is here for you. Take a look at one of our Risk Manager newsletters—just one of the services we offer our real estate professionals.
