COVID-19 has completely changed the real estate game for buyers and renters alike. These days, buyers are seeking homes outside of urban areas and big cities now that working from home is the new norm, while renters are seeing prices declining. Housing that requires people to be in close contact with strangers is now at a disadvantage. Buildings with elevators are somewhat of a no-no for folks. Who wants to share a small enclosed space with strangers at a time like this, right?
But it likely won’t be this way forever. The prediction is that as a coronavirus vaccine becomes available, some of these changes will shift and the desire for urban housing will go up again. Until then, you can expect single-family homes and multifamily units out in the ‘burbs to remain in high demand.
Despite the ongoing health crisis, rising unemployment, and battered economy, residential real estate is still on the rise. Why and how is this even happening?? This new phenomenon, coined by the CEO of Zillow, is called "The Great Reshuffling."
With millions of people making major housing changes, from upsizing to downsizing, being closer to family and further from the office, this pandemic is causing us to rethink and reshape the way we live and work. Those who plan to WFH forever are moving away from urban centers, where demand is far outstripping supply. Buyers want to move to larger spaces, while current homeowners are hanging onto their homes amid all the uncertainty, limiting available inventory.
Instead of LOCATION LOCATION LOCATION, the new real estate mantra seems to be HOUSE HOUSE HOUSE (although that doesn't roll off the tongue quite as easily). So while commercial real estate is on the struggle bus, residential real estate is still for the most part very much a seller's market.
Covid has had an interesting effect on rental markets, with housing becoming cheaper in the country’s most expensive cities (San Francisco, New York City, Boston, San Jose, and Oakland to name the top 5), while getting pricier in more historically affordable areas. What’s going on? Amidst the pandemic we’re in, demand for rentals has dropped in the aforementioned larger cities, the desire for housing in cheaper suburban areas has gone up. According to the rental platform Zumper, people are opting to move out of their large city dwellings and opting for cheaper housing while they work remotely, effectively closing the gap between price distribution of rentals across the U.S.
For the first time since 2011, the number of homes for sale in San Francisco reached levels similar to that of our last recession with 50% more single family homes on the market than this time last year, and 130% more condos. Could this be the start of a buyer’s market emerging in the city? SF sellers are having to decrease asking prices to stay competitive as more people are working remotely and choosing to seek new homes outside the city.
At the same time, single-family home sales in the greater Bay Area have jumped up by 70% in June alone, highlighting the exodus of people from bigger cities to smaller surrounding suburbs. And with the stock market performing strongly and interest rates reaching record lows, people are more eager beaver than ever to buy a home.
Is that like the biggest oxymoron or what? But we are in strange times, so let's just roll with it. Between a global pandemic, a collapsing economy, political and racial unrest, a mind-numbing mask-wearing debate, the second wave of coronavirus, the re-shutting down of businesses, not to mention this is all happening during an election year where Kanye West is apparently running for president (seriously, what. is. happening!), June/July has been one crazy year.
Yet, despite the chaos, the real estate market is making a dramatic recovery. Mortgage applications are at an all-time high, interest rates are dropping to record lows for the third week in a row, and I have been really really busy (probably not a good data point but you get the idea).
Before the legalization of recreational marijuana, industrial warehouse properties in Oakland were largely being used by artists to curate and host events or create large scale projects. But once 2016 hit and weed became legal, cannabis businesses began filling these industrial properties instead. Rents have shot up and many artists have sadly been priced out altogether.
When Oakland announced permits for marijuana dispensaries in 2018, 116 businesses applied for only eight available spots. Between May 2017 and August last year, 124 businesses approached the city to open indoor growing operations. Rents for industrial properties rose 70% in 2017 alone. And while Alameda County made around $12 million in cannabis sales tax last year, none of that went towards arts or culture programs.
This isn't just specific to Oakland though. This is happening in states like Washington, Nevada, Illinois, Michigan, and even in Canada, which legalized cannabis as a whole country. While many artists supported the legalization of marijuana, they did not foresee the consequences of workspace rent hikes, which have unfortunately put a lot of them out of a place to work and live.
Apparently June was the ideal time for buying a luxury home in San Francisco. Last month, more than 30 luxury single-family homes ($3 million and up) were sold, the highest in 2 years, causing average home values in the city to reach a record high of $1.8 million. WOW, right? Even in the middle of a pandemic, buyers with $$$ remain the least affected by financial hardship due to coronavirus.
Meanwhile, median condo prices saw about a 4% dip in values. Condos, in high supply due to recent new construction, are typically bought by younger and less affluent buyers than single-family homes, and as such, may have been hit harder by the increase in unemployment.
COVID-19 has caused a lot of folks to rethink their living arrangements. The logic seems to be, if nearly everyone is working from home now, why not move out of the city and into a home in the 'burbs where you can get more bang for your buck? For some, that means buying a second home while continuing to rent in big cities like New York and San Francisco. The appeal? Cheaper prices, more space, closer to nature, and being able to raise a family comfortably, while still getting the occasional city fix. It's the best of both worlds!
New home listings and sales have dramatically dropped since the pandemic hit, but traffic to real estate sites has actually gone up. Why is that, you ask?
Well! According to data from Zillow, there are now more buyers actively looking for homes compared to a year ago. More people looking to buy property? In the middle of a global health crisis??
Yep! There's still a ton of interest among buyers (probably more so now as they're stuck inside their less-than-ideal homes). San Francisco, among other major cities, saw a huge drop in listing views right after the pandemic hit, but has since bounced back to much higher levels than this time last year.
So what? This is significant because demand for housing is still there—it's just a matter of waiting for the supply to return to the market. With more buyers starting their search again and listings slowly trickling into the market, there's signs of pent-up demand and a backlog of listings bubbling beneath the surface just waiting to pop.
With our currently vulnerable economy, many are worried that the housing market could be in trouble just like during the last great recession. And that's a totally reasonable concern, right? Wellll, not really because here’s some relieving news you guys—this is NOT like the crash in 2008. And here's why:
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