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.
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!
After a brutal couple months (which equates to 250937 days in corona years), stats show that the housing market could actually be leading the economy's recovery. Mortgage applications rose to an 11-year high. Interest rates are at all-time lows. Average home prices across the country hit a record high of $365k. Buyers are like, what pandemic?
Americans' home-spending habits aren't changing as drastically as they have during past recessions, showing that people are confident that this too shall pass and the economy will get back on track. 8.5 out of 10 experts agree: the economy will begin to recover in the second half of 2020. Which is pretty much like, right now.
Why is everyone betting on the strength of the housing market?
While this data might be comforting to some, others are concerned about rising home prices and the widening gap in affordable housing. Home prices have gone up faster than most people's incomes, and the pandemic is only accelerating that trend. It remains to be seen what will happen long term (mostly because the crystal ball everyone pretends to have doesn't exist), but for now, it looks like our economy is slowly but surely on its way to recovery.
With big companies like Facebook, Twitter, and Shopify setting the trend for employees to work from home forever-ish, potential home buyers are wondering why they're living in a pricey city to be close to work when work is actually just their dining table most days anyway.
This may explain why the Oakland market is recovering much faster than in San Francisco or San Jose. Move-in ready homes in Oakland are selling in 5-10 days with multiple offers. There are fewer homes on the market, but almost as many people searching as there were pre-pandemic.
The more suburban cities like Berkeley or Walnut Creek will likely see an increase in buyers too as remote work becomes the norm. I mean hey, if your money could get you a bigger house with an actual yard and your only trade-off is having a longer commute where you cry in the car two days out of the week instead of five, then I say why not?
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:
Once upon a time, millennials were willing to sacrifice a few stimulus checks (and then some) on each month's rent to live in a closet-sized apartment just to be part of the hustle and bustle of a city. But when all the alluring things about living in a city (like bumping into people on crowded streets, standing in ridiculously long lines for brunch, and cramming your way into packed sports arenas and concert venues) can potentially change, the possible danger of these everyday social interactions could accelerate a trend away from densely populated urban cities and into the suburbs.
After the lockdown, new home sales came to a screeching halt (as did everything else). But in the last two weeks, homebuilders have seen sales start to climb back up, particularly with dual-income first-time buyers wanting to leave their tiny apartments and buy larger move-in ready homes that they find more safety and stability in. More emphasis is now being placed on outdoor areas, functional layouts, and overall MORE SPACE.
The secret is out: Doordash tastes the same from wherever you are.
So how does all of this uncertainty impact the housing market?
Short Term: Despite sellers still needing to sell, inventory will decrease sharply. Listings are still trickling onto the market, but nowhere near the number it would've been had our lives not been turned upside down. While many buyers are in "wait and see what happens" mode, serious ones and those who have been "waiting for the market to go down" remain undeterred and can expect less competition with a slight corona discount.
Long Term: We're going to see a deep recession, but most likely the shortest one in history, with the economy predicted to start recovering towards the end of summer. Prior pandemics showed that while the number of home sales dropped dramatically during an outbreak, home prices only decreased slightly. The pace at which prices were rising will most likely slow down, but nothing like 2008 prices as that was caused by oversupply and we still very much have a housing shortage. When all of this is said and done, the backlog of inventory combined with pent-up demand from buyers will stabilize the market again.
Buuut, disclaimer: things are changing so quickly everyday that this may all be different even by next week. The news is difficult to keep up with these days!
All things real estate.