3 Reasons the Omicron Variant Could Negatively Affect the Housing Market

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A month ago, all signs pointed to another robust housing market in 2022, with one forecast projecting that home sales in the United States will rise 6.6% to their highest point in 16 years. Since then, the Omicron variant has spread rapidly across the country, throwing a wild card into the U.S. economic recovery and raising questions about its impact on housing.

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A recent report from Realtor.com spelled out some of the worries surrounding Omicron, including the fear that vaccines and antibodies acquired after infections might not be as effective against the variant. If those worries are confirmed, the report said, real estate experts believe Omicron could have an impact on everything from mortgage rates to home supplies.

For now, many remain cautiously optimistic about the U.S. housing market entering the new year.

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“My expectation is Omicron will have just a small effect [on housing],” said Realtor.com Chief Economist Danielle Hale. “If you look at what happened with Delta, there was a bit of a drop-off in listings, at least temporarily. It will be somewhat similar [with Omicron]. Some sellers might say, ‘Hey, let me wait for the wave of this pandemic to pass.'”

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So how could the Omicron variant negatively impact the housing market? Here are three possibilities:

Uncertainty Could Lead to Paralysis

When it comes to the economy, nobody likes uncertainty — and that’s especially true of the housing market, which depends on home buyers having confidence that the time is right to make a large purchase.

Robert Heck, vice president of Mortgage with Morty, a mortgage services platform, said the rise of the variant “has definitely caused renewed uncertainty” about housing, along with other factors such as inflation.

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“While we’re still waiting to learn more about the level of disruption the variant may cause in the coming months, [mortgage] rates will likely fluctuate but remain at or near historic lows, as long as the two major competing factors — COVID and inflation — are at the forefront of the economic outlook,” Heck said in an email statement to GOBankingRates.

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For prospective homebuyers, he added, it will be “difficult to predict or time a purchase based exclusively upon the lows in mortgage rates, making it even more important to look at every element of a transaction to ensure it will make sense over both the short and long term.”

Norman Miller, a real estate and finance professor at the University of San Diego, has a similar take, telling Realtor.com that uncertainty surrounding the variant “could force some people into paralysis and hibernation. If Omicron proves to be dangerous, it could push some potential home sellers to hold off and hunker down instead and buyers to wait out the worst of it.”

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The Urban Housing Rebound Might Stall

When COVID-19 first hit and much of the country was forced to work from home, many Americans left big cities for more spacious houses in the suburbs. This had a big negative impact on urban housing markets. Those markets have begun to rebound this year amid a massive rollout in vaccines and hopes that the worst of the pandemic was behind us.

But the Omicron variant has thrown a wrench into those hopes, which could be bad news for the urban market’s rebound.

“People have started returning to the cities. That could stall,” Gay Cororaton, a senior economist at the National Association of Realtors, told Realtor.com.

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Inventory Might Remain Historically Low

If Omicron proves to be a lingering and disruptive problem, it could “worsen the already thin supply of homes for sale,” the Realtor.com report said. It could also affect mortgage interest rates “and ultimately result in higher rents in some parts of the country and lower rents in others. But it will be weeks before scientists understand how the vaccines, antibodies, and treatments stand up to omicron.”

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