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In a strange turn of events, rent levels and home prices have diverged across the country. Home values increased in all of the 100 largest metros in the U.S. But in some of the richest cities—rent prices fell, many by double-digit percentages.
Why is this very unusual trend happening? Like so many other financial and social matters, it might be the economic divide. The pandemic has unfortunately widened the gap between those who are thriving financially and those who are barely scraping by. While the stock market continues to go up, making wealthy people even wealthier, millions of Americans remain unemployed and struggling. And the same is happening in our housing market. As demand for homes soars and prices are increasing at a much faster pace than incomes, high-end homeowners are seeing their property values skyrocket. Meanwhile, those looking to purchase low to middle-tier houses are finding it difficult to even afford a place.  But they're not ending up where you might think. SF residents are indeed leaving the city in droves, but they're not going very far. We keep hearing about this mass exodus to more affordable places like Austin or Denver, but USPS data shows that they're mostly heading across the bridges to other Bay Area counties including Alameda, San Mateo, and Marin. Maybe after things return to normal(ish), everyone will want to head back to the city again and there will finally be more inventory everywhere else!
Demand for housing has continued to rapidly grow throughout 2020, and it is only expected to surge even further as economies reopen in 2021. Zillow predicts that annual home sales will reach their highest since the 1980s, forecasting nearly 22% growth.
They also believe that city living will make a comeback next year, especially as the vaccine becomes more widely available to the general public. While a lot of young adults moved back in with their parents this year to save money, it is likely that once the economy bounces back, they will be moving back into big urban areas in droves. (Does that mean the sad SF condo market will finally make a comeback??) Zillow also expects that buyers will continue having a hard time affording homes, particularly if mortgage rates start to increase in 2021 and housing prices remain high. At the same time, if rates are indeed predicted to rise later in the year, this may cause an even bigger buyer frenzy for those looking to lock in low rates ASAP. Sadly there seems to be no end in sight for bidding wars. :( Amidst a tough year in terms of the pandemic, widespread economic shutdowns, business furloughs, and record high unemployment rates, one of the silver linings in the train wreck that is 2020 has been the boost in the real estate market. As more people began to work from home and interest rates dropped, the demand for homes surged which created a rush to purchase property.
But this may be creating somewhat of a false sense of security for the overall economy, as the booming housing market doesn’t necessarily reflect the portion of the population that remains unemployed and counting on mortgage forbearance benefits. There is definitely promising data that the economy is slowly healing, but with continued small business failures and corporate company bankruptcies, we should probably proceed with caution.  We know that real estate is booming, but not all homes are created equal. Which ones are flying off the shelves and which are getting stale from sitting out for so long? In Santa Clara County, single-family homes continue to be a hot commodity while condos and townhomes lag behind. Many sellers are having to drop their prices to attract buyers to their units. In SF, some agents are even offering free cars and roundtrip flights to Paris to incentivize condo buyers. So what’s the deal?
Condos are usually in high demand among middle income households, but with the pandemic-induced hit on the economy, these households are being forced to put their real estate plans on hold. Meanwhile, higher income earners have largely remained unaffected. Combine that with lower interest rates and the demand for extra space and yards being at an all time high, and it’s pretty clear why single family homes are getting multiple bids and going pending in less than a week. The bright side? You can probably get a pretty good deal on a condo or townhouse right now. And maybe even a free car on the side?  Among all of the crazy things that 2020 will be remembered for, a record-breaking year for real estate will definitely be one of its more surprising outcomes. Since the pandemic hit, about 2.9 million U.S. homes have been put on the market. That’s almost 400,000 fewer homes than the same time in 2019. What gives?
Sellers these days are more reluctant to list their homes due to financial uncertainty, while buyers (particularly first-timers) can't wait to take advantage of low mortgage rates. All of this creates the perfect storm of low housing inventory. With this pandemic still in full force and the Fed promising to keep rates low for a few more years, even the CEO of Redfin expects this "absolutely insane" housing demand to last into 2021...at least! (And in the same breath, he also doesn't see how this can possibly last forever.) The housing market is one of the few sectors to experience a true V-shaped recovery following the initial hit from the pandemic. But without enough houses for sale, the newfound demand is unfortunately driving an affordability crisis, where in many cases, higher home prices strip away the benefit of lower interest rates. 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. |
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