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The latest COVID-19 variant—omicron—has spawned new health and economic concerns, and it could have an impact on the residential and commercial market. News outlets reported on Wednesday that a case involving the omicron variant was identified in San Francisco. There has also been a reported case in Minnesota.
New fears over the omicron variant could drive mortgage rates lower. They also might press on demand for what has been a rebounding office sector, real estate economists and analysts suggest.
Economists warn that the forward trajectory of the housing market may be heavily dependent on the variant as more becomes known about it. If omicron is shown to be a larger threat, officials could reintroduce policies to curb the rate of infections, which could delay homeowners from listing their homes.
“Headlines and new restrictions related to the omicron variant of the coronavirus might fuel some uncertainty and volatility in the economy,” says Daryl Fairweather, Redfin’s chief economist. “In the short term, global interest rates, including mortgage rates, could fall. In this extremely tight housing market, we could quickly see a proportional increase in competition and home prices.”
Redfin cites newly released housing data that shows the number of homes for sale reached an all-time low during the week ending Nov. 28. That could fall even lower, as the number of homes for sale typically declines another 15% in December as well. “That means that by the end of the year, there will likely be 100,000 fewer homes for sale than there were in February when housing supply last hit rock bottom. I think more new listings will hit the market in the new year, but there will also be a long line of buyers who are queuing up right now.”
On the commercial side, new demand for office space dropped in October to the lowest rate since the first quarter of this year, according to a new report from VTS, a commercial real estate asset management company that tracks new tenant office tours as an indicator of upcoming office leasing activity. Demand has fallen 30% nationwide since peaking in August of this year. This summer, office leasing saw a rebound as companies became more optimistic about return-to-work scenarios. But all major markets are now seeing a decline in demand, most notably Los Angeles, San Francisco, Boston, and Seattle, VTS reports. Companies may use the latest variant as an excuse to push back plans for returning to the office.
“The divergence between top-quality office and generic office is accelerating,” Alexander Goldfarb, senior research analyst at Piper Sandler, told CNBC. “The bulk of the leasing is occurring in brand new construction and buildings that have been heavily renovated recently. The losers are the run-of-the-mill office towers. COVID has accelerated that trend.”