The only thing certain about the COVID-19 pandemic is the uncertainty its arrival has caused. When the COVID-19 coronavirus first hit, its arrival unleashed a slew of economic pundits who were warning of the challenging times for the real estate market due to the pandemic. These economic gurus were cautioning the markets and investors that government had a fiduciary duty to recognize the need to protect citizens by mandating the slowing or closing of businesses, agencies, and schools, except those that were deemed necessary to remain operational.
Only a dozen years earlier, the real estate market experienced a global recession, which essentially wiped-out trillions of dollars of real estate value. Would the COVID-19 pandemic trigger another downturn like 2008, or perhaps be even worse, be as devastating as the Great Depression of 1929?
Let’s review a bit of recent real estate history.
Between February of 1997 and the end of 2005, real estate prices rose significantly – about 75%. This occurred although during this time there was a defined recession in 2001 that led to a stock market drop between 2000 and 2002 – which erased more than $5 trillion in market value. Real estate prices were hot, until 2008, when home prices, in reaction to treacherously loose lending standards (and a few stars aligning), dropped to their lowest levels somewhere around the beginning of 2012.
The reality is that the 21st century real estate market has bucked conventional wisdom. And this time, the real estate market shake-up has not been caused by political turmoil (think back to the oil embargo of 1979) or wild financial speculation (think back to the dot.com busts that happened twice!).
Before COVID-19 began, the United States housing market had recovered from the recession that occurred nearly a dozen years earlier. According to econofact.org, the housing market showed strong data:
- Housing starts had been on the rise for the past decade.
- The home price index known as Case-Shiller showed a price increase of 4% during the calendar year 2019.
- Delinquency rates for mortgages secured by one-family properties had been falling since 2010 when mortgage delinquencies occurring in the United States were at their peak.
Despite some dire predictions by some very wise real estate gurus, the overall real estate market has been performing well (even outperforming) across wea number of sectors. According to the US Census’ third-quarter report of 2020, the homeownership rate was 67.4% – about a 2.5% increase from the third quarter of 2019, one year previous.
While COVID-19 has not caused a real estate market downtown (thankfully), the pandemic has done some fancy footwork by re-prioritizing real estate in a serious way. In fact, many believe that some of the real estate changes we are experiencing will never return to pre-pandemic metrics.
Living with Unprecedented Uncertainty
The COVID-19 pandemic has created the need to re-prioritize our lives, of which real estate is a huge part. Nearly ten months into the coronavirus pandemic of 2020, it is still too soon to tell if:
- It is safer to live in more moderate climates – like the southwest or the south, where social distancing can be done outside year-round.
- Companies will let employees work remotely for the foreseeable future, or maybe permanently.
- Living in the city near great food and culture is a good idea when most bars and restaurants may never reopen.
Real estate properties located in towns and cities that were once considering unappealing (for a variety of reasons) have suddenly become highly desirable and hot properties because:
- These properties are located in pleasant, year-round outdoor living climates.
- These properties offer healthier lifestyle choices during a pandemic that shows little sign of slowing down.
- These properties are situated in less dense locations, often with more affordable tax structures.
Against the COVID-19 backdrop, a new normal for real estate is under construction and yet to be defined. But, against the same backdrop, tremendous opportunities await those savvy enough to look and brave enough to buy.
What Is the COVID-19 Migration?
For generations, northerners have been moving south and west to more appealing climates, many as they approach retirement age. South Florida is jokingly known as New York City’s ‘sixth borough’ because so many New Yorkers have moved to south Florida to enjoy its year-round, outdoor lifestyle.
Perhaps the most significant impact COVID-19 has had in this regard is the pace (which is clearly accelerating) at which northerners are deciding to move to a place they want to live, rather than settling in a specific area because of its proximity to one’s job or child’s school.
The consequences of this newly accelerated migration will likely rearrange long-standing demographics and economic opportunities today and in the near future. It is for this exact reason that real estate professionals need to sit up and pay attention to where Americans are headed and why they are headed there.
From every perspective and every metric, Americans are now deciding to move at a faster pace than before the onset of COVID-19. According to Realtor.com, these are the current metrics as of 9/24/2020 –
- The number of individuals who were shopping for a home in suburban locations was increasing faster than those who were shopping for a home in an urban area. As such, metrics demonstrate that more Americans are looking to move to homes located in lower density locations.
- Because of this increase in demand for residential properties in suburban locations (and a lower supply by its very nature), the inventory of homes in these preferred suburban locations has been waning faster than their urban counterparts. In July 2020, Realtor.com noted that within the 100 largest metropolitan areas analyzed for the report, the urbanites were increasingly searching for properties located in more suburban locations. In November 2020, Realtor.com’s Senior Economist George Ratiu noted that current and new inventory continued to contract.and home prices jumped more than 12% from November of 2019.
In search of a home in suburbia, Americans are driven by great pent-up demand and a new freedom to work remotely. This summer’s statistics reveal that Americans were searching for:
- More room and bang for their buck in real estate.
- Less dense neighborhoods that make social distancing easier and offers more opportunities to do activities outdoors.
- Attractive climates that allow for year-round living.
- Quiet neighborhoods.
- Homes with offices.
- Access to safe outdoor areas.
What the Pandemic Has Taught Real Estate Professionals
Despite what would be a typical reaction to an economic lockdown/slow-down, a change in homeownership (from one real estate market to another) has become a beacon of hope for many families who struggle with having space enough for everyone to accomplish their personal goals.
As such, COVID-19 has essentially set the real estate market on fire, rather than taking it on the chin as anticipated by so many pundits. And while previous economic catastrophes tend to have bright spots among troubled areas, in the wake of the COVID-19 pandemic, most real estate regions remain hot.
Real estate professionals must now begin to shift their focus to meeting the newly re-defined needs/wants of Americans in search of real estate. The new American homebuyer has rearranged their priorities and is now in search of a piece of property that offers these kinds of features:
- An opportunity for a better quality of life.
- A community to participate in.
- A walkable, outdoorsy lifestyle.
- Enough space for everyone’s activities, work, and school.
- Flexibility in terms of the use of available space.
The real estate markets that will perform best in the new American post-pandemic landscape will be those locations that offer the following options and amenities:
- Neighborhoods that offer outdoor living with bike trails, running paths, dog parks, and walkability features, etc.
- Homes that are situated within walking distance to stores, parks, schools, and other desirable amenities.
- Larger, more flexible spaced homes to allow for modifications as needed.
- That is close enough to larger employment zones but far enough away to have open spaces for outdoor activities.
Examples of locations that offer these amenities and are important markets to pay attention to include:
- Colorado Springs, Colorado.
- Topeka, Kansas.
- Springfield, Virginia.
- Columbus, Ohio.
- Raleigh, North Carolina.
Real Estate at a Crossroads
The COVID-19 pandemic has essentially fast-tracked the trends that were in place long before the coronavirus pandemic gripped the globe.
With more than 11 million confirmed cases of COVID-19 in the United States (Johns Hopkins Coronavirus Resource Center 11/16/2020) and more than 1 million cases confirmed in one week, the COVID-19 pandemic is far from over.
However, this moment in time is unique in that we, as a nation, can now re-examine how to create an even better housing market that serves everyone.
The reality is most American families have re-arranged their priorities. These changes likely include the shifting expectations about homeownership and office environments.
The Bottom Line
The COVID-19 pandemic is a game-changing event. But what will the new normal for the real estate market look like? How long will the COVID-19 pandemic continue to disrupt American lives? American Businesses?
If it wasn’t for the amazing technological advances implemented during the past three decades, how this pandemic would have played out would have been significantly different. Remote working would have been nearly impossible!
Unexpectedly, the coronavirus pandemic has essentially freed workers from their tethered desks. Employers, without any other option, have had to allow workers to work remotely to comply with the COVID-19 mandated quarantine.
And American workers have responded with great success to this unanticipated isolation, but in the process now realize the true benefits they receive by having a shorter or no commute and the flexibility to work at any time, from anywhere. This insight has generated a shift in the preferences of those consumers in the market to purchase real estate.
After ten years of pricing increases for real estate properties, many homebuyers are now outpriced in urban markets, which is among the driving forces creating the current suburban location growth.
Finally, it is essential to note that much of the current demand for residential real estate is now driven by the largest generation in the United States history – the Millennial generation. Although the Millennials’ entrance into the real estate market is somewhat later than previous generations (i.e., the Silent Generation, The Baby Boomers, etc.), the millennial generation has finally embraced the concept of homeownership during the 2020 COVID-19 pandemic.