When the U.S. economy shut down last March, a housing market collapse was widely anticipated. And not without reason. With job loss at a continuing high, unemployment benefits up in the air, and a major economic downturn with no end in sight, reason might dictate that a housing catastrophe is imminent, but it hasn’t really happened yet.
COVID-19 has certainly affected residential real estate. New York City and San Francisco have seen dramatic declines in urban housing, with NYC experiencing an unprecedented drop in apartment rentals and sales. On the other hand, some markets are absolutely booming.
Many of these new “hot spots” have sprung up where real estate prices had remained relatively stagnant for years. Realtors cannot keep suburban homes in many areas on the market right now, often facing inventory shortages and happily hosting bidding wars that go well above asking prices. Areas formerly designated as “vacation towns” such as Aspen and the Hamptons are also experiencing a dramatic uptick in activity.
So why are people shuffling the residential real estate market this way?
We think several forces are at work to create a “perfect storm” for these emerging hot spots:
- More remote work opportunities that may be permanent. Remote work has been debated and considered for many years among companies unwilling to test the theory at the expense of a possible decline in productivity. But after March, the entire country was thrown into the deep end of virtual employment, and many have learned to swim. Remote options are becoming increasingly permanent, which means that commute times are no longer an issue for home buyers, and the high prices and small spaces of urban living can be abandoned.
- Minimal COVID-19 exposure in less populated areas. As everyone scrambles to protect themselves and their loved ones amid rising numbers of infection, less populated areas logically include less risk of exposure. Some smaller towns and more remote locations where fewer people are grocery shopping and generally moving among one another have almost no cases of the virus, making these areas more attractive to home buyers.
- Quality of time at home has taken the place of “things to do.” With restaurants, events and attractions shut down for so long, everyone has spent much more time at home, pulling the focus from “location, location, location” to “space, amenities, and also space.” It has long been acknowledged that pools do little to increase home values. Now some realtors say that buyers are purchasing the pool and “the house that goes with it.” Similarly, larger houses and yards in suburban spaces that often provide more access to fresh air and the outdoors have edged out “walkability scores” for home buyers.
- Pay cuts and furloughs forcing “downsizing” or “moves to where the jobs are.” While the bidding wars abound, suburban or small town housing is still often less expensive that big city apartments or homes. And not all big cities cost the same or are experiencing the same conditions. Buyers moving from places like California or New York may be looking for jobs in places like Austin, Texas, where homes are much less expensive and the job market is somewhat healthier.
The current surge in demand is a good wave to ride through this stage of the pandemic, though it could still be leading to collapse. As it stands, business is booming where home owners are taking advantage of this hot market shuffle and meeting the demand. But that demand might wane as the pandemic rages on, and inventory could become scarce as financial insecurity rises. Where the dust settles when the virus has cleared is anyone’s guess.