In a New York Times op-ed shortly after the stock market crashed in September 2008, Warren Buffett wrote that his investments would be guided mostly by a single piece of advice, "Be greedy when others are fearful and fearful when others are greedy."
Throughout his decades-long career as chief executive of Berkshire Hathaway, Buffett has been known as a "value investor." He consistently looks for stocks that are priced low relative to their value. In times of disrupted financial markets, Buffet has always seemed to find good bargains. Just as there were opportunities for real estate investors during the 2008 crisis, fortunes will be made in stocks and real estate in the 2020 crisis also.
Commercial mortgage-backed securities had a pretty sharp increase in delinquencies in March, up by 2 basis points to 2.07% after months of declines, according to Trepp, which tracks commercial mortgage data. It's an indication some property holders were starting to struggle with debt payments.
With high unemployment rates, owners of large multifamily apartments are likely to suffer a blow to rental income in the short term. It stands to reason that certain commercial properties in segments such as retail and hospitality will also see downward pressure on rental income.
Short term, this is obviously an issue for real estate investors. But since commercial property values are much more pegged to income than small residential investments, there might be corresponding price drops in some areas. Projects that offer lower acquisition costs now in markets that still have solid fundamentals for growth could be good value investments longer term.
Some of the early data from March suggested that the residential real estate markets in the United States were heating up for spring. By mid-March, however, there were 15% fewer listings of single-family homes for sale than during the same time in 2019, according to Realtor.com. For the week ending March 28, new listings were about a third lower than the previous year.
The numbers suggest sellers were holding off putting properties on the market during a time when buyer traffic was expected to be low. In areas where the inventory of homes for sale was already low, home prices might not take as big a plunge as you might expect. Realtor.com reports that the median sales price of a U.S. single-family home in March was up slightly from last year, though different parts of the country felt the effects of social distancing at different times of the month.
Access Could Play a Role
Even if sellers don't decide to keep properties off the market until the smoke of pandemic clears, there could be issues with completing real estate transactions.
Home buyers have grown accustomed to doing online searches for new homes, and real estate agents have been doing virtual tours for years. Social distancing will put the focus on those aspects even more. Commercial investors also don't always need open houses or even physical tours before investing in a property.
And in most places, agents, lenders, and title companies are functioning as "essential" businesses. The hang-ups might be with appraisers and/or inspectors, who are unwilling or unable (or both) to go inside buildings to complete their reports. If you are able to find an investment property that represents a solid value investment, you might experience some delays in the purchase process.
Keep in mind that the economic downturn of 2020 is not the one of 2008, which was influenced directly by real estate. This time around, real estate—both residential and commercial—was on solid footing and going strong when the disruption hit. Short-term pain might mean undervalued assets that could produce long-term gains.