The last few months have presented a rollercoaster of reactions, predictions, and turns in both the U.S. real estate market and the economy at-large. Since the very beginning of the COVID-19 pandemic, we have stressed a need for faith and patience in the real estate market. Thus far, we have seen widespread tenacity and adaptability. By and large, the U.S. real estate market has seen surprisingly positive movements.
We’re in uncharted territory. As a result, many were predicting the collapse of the market. Thoughts of the 2008 housing crash were not far behind!
What we’ve seen and experienced since, however, has been remarkably stable and market momentum. The few months of stay-at-home orders created pent-up real estate demand. Realtors adapted by embracing virtual spaces. Government provisions provided a small measure of relief and aid.
But now, some five months into a widespread pandemic — where does the real estate market stand? And perhaps, more importantly, where will it go from here?
Emerging Real Estate Trends as of July 2020
The Suburban Surge
One trend that we’ve seen in the U.S. housing market so far is a migration from expensive, population-dense markets into more suburban and rural areas. If there was ever a time for demand in secondary and tertiary markets, it’s now! There are two primary factors contributing to this shift:
Health Concerns — Crowded cities that offer little space from neighbors are prompting residents to look elsewhere. With COVID-19 fears top-of-mind, residents, especially those in apartment complexes, are looking to put more space between themselves and others. Not only do suburban and rural areas offer more distanced living space, but lower populations mean that public and retail spaces are less crowded. This has led to a shift from primary markets to smaller, less dense areas.
The Rise of Remote Work — Contributing to market migration is the rise of remote work. Because many workers are now (and perhaps permanently) working from home, there’s no longer an obligation to reside in expensive primary markets for Silicon Valley jobs. Remote working means residential flexibility, and many are taking advantage of more affordable markets, further away from their big-city jobs.
Be sure to check out: Secondary Markets for Long-Term Real Estate Investment Success
In addition to these two primary factors, residents, particularly those concerned about affordability and their economic prospects, are moving to cities with lower costs of living and lower state tax rates. Because many are seeing their financial futures with a big question mark, saving in these ways has become essential!
The housing market, on the whole, has had a good decade. Post-Great Recession, many markets saw renewed demand and rising equity. While some found their footing more readily than others, it’s safe to say that the market has been long overdue for a recession. While the pandemic has undoubtedly led to dips in market activity compared to previous years, we’re still seeing stable, if not rising, home equity.
Because many sellers pulled properties off the market or chose to wait to list, inventory is tighter than ever. With pent-up demand exploding in May, buyers were met with an intensely competitive market. The migration of homebuyers from primary markets has pushed property prices up in suburban and rural areas. Because their cost-of-living and wages tend to be higher, than can afford to pay much more — often in all-cash — in other markets. This has sparked competition and threatened affordability.
With the mad scramble to buy during a time of historically low interest rates, that fear of missing out is prompting a robust and competitive housing market to emerge. Time will tell whether these trends are sustainable.
With that in mind, what will the rest of 2020 look like for U.S. real estate?
What Does the Rest of 2020 Hold?
The Yo-Yo of Recovery
While we’re in the midst of a strong seller’s market — a trend that will likely continue due to tight inventory and high demand, particularly in secondary markets — it’s probable that we will see a “yo-yo” effect in the real estate industry. While May saw a surge of homebuying and market activity, this activity will likely retreat as COVID cases spike and some cities return to stay-at-home orders or other public health provisions. While a resurgence of the virus was expected for the fall, we’re already seeing a growth in cases that could put a damper on real estate transactions.
At the same time, inventory will no doubt remain tight while demand for larger homes with more amenities grows and demand for apartment housing shrinks.
A Big Economic Question
While interest rates and inventory conditions are likely to sustain home equity in the coming months, the economy will play a major role in where the real estate market goes from here. As government financial provisions and protections expire (including increased unemployment benefits, and rent and mortgage relief) and the distance grows between Americans and their stimulus checks, we will likely see a rise in foreclosures. With a high unemployment rate and a general lack of market affordability, it will be difficult for American families — particularly those in lower-income tiers, where jobs were most impacted — to afford their living arrangements, be it mortgage or rent payments.
The recovery of the economy or lack thereof will play a major role in the state of the housing market moving forward. Developments in new government relief packages, virus trends, and vaccine dates will all shape the real estate market.
As we enter the second half of 2020, we can make some wise predictions while recognizing that these are uncertain times. Real estate market moves will take a cue from dozens of nuanced factors.
Because of this, real estate investors would do well to invest wisely — with the experts by their side, guiding the way through an ever-shifting market.
REI Nation has a track record of success. Join the thousands of investors building their passive wealth!