Three Scenarios That Predict What a Post-Pandemic Housing Landscape Might Look Like
If 2020 has taught us anything, it’s that life is full of uncertainty. The COVID-19 pandemic has touched every walk of life, disrupting the careers, routines, and plans of billions of people. Nowhere is this more true than in the real estate market, which was thrown into disarray first by the creeping fear of the coronavirus, then by a potentially calamitous economic shutdown and its residual effects. After a three-month stagnation under shelter-in-place orders, an ambitious bid to reopen the country failed miserably, and orders to revive the lockdown were re-issued across multiple states.
So, what will become of the real estate market in the coming months and years? How will government measures and the widespread, general fear of infection among consumers impact it? How long until the industry is restored to a healthy state? According to real estate professional, Peter Lowes, the answers to these questions are intrinsically linked to the length of time it takes to develop an effective COVID-19 vaccine and the accompanying return to normalcy it will bring.
The Immediate Past
In forecasting how the pandemic might affect real estate in the future, it is useful to revisit exactly what has happened to the economy in the past few months and where it stands right now. For the sake of brevity, the scope of this article will be limited to the American housing market.
According to Bloomberg, the fundamentals of the housing market were strong moving into 2020. Compared with years past, banks were not as overextended, criteria for credit was stricter, and mortgage processes were more transparent. The homeownership rate was up, and the mortgage delinquency rate was down. But that is not the whole picture. The real estate industry is impossible to disentangle from the larger, overall economy, meaning that the more people there are gainfully employed with savings and good credit, the more houses get sold—and for higher price. By 2019, there was a multi-year trend of steady wage growth. Also helping to bolster the housing market were historically low interest rates. Times were good. Then COVID-19 landed stateside.
In mid-March, along with almost everything else, the real estate industry was sent into upheaval as state governments mandated varying degrees of public lockdowns. Realtors were not exempt. All of a sudden, offices all over the country were shuttered and agents had to scramble to move whatever semblance of their operations they could online. Homeowners with houses on the market or sales agreements that weren’t yet finalized were left in a frustrating state of limbo. Although, amazingly, some properties were still bought and sold throughout all this, the market on the whole suffered greatly.
Further aggravating the situation, in April there was a significant, nationwide spike in unemployment. Those numbers have since come down a little bit, but are still nowhere near pre-pandemic levels. Congress passed a band-aid solution by temporarily increasing federal unemployment benefits, but these increases expired in late July, and no one knows how badly that will affect the economy. How many people will default on their mortgages as a result? At this point, no one knows. As summer draws to a close, the real estate market remains in a holding pattern, waiting to see what key economic statistics say and if a coronavirus vaccine is discovered.
If a Vaccine Is Found in the Near Future
According to Peter Lowes, the first scenario worth exploring is the easiest to predict, as well as being the most optimistic. Armed with a vaccine for COVID-19, many experts predict a rapid ‘v-shaped’ recovery in the American economy instead of the slower, more traditional ‘u-shaped’ recovery of past recessions. Considering the fact that the real estate market is inextricably tied to the overall economy, as well as its solid foundations leading up to the outbreak, it is generally thought that should public health be restored and public fears be quelled, things would revert back to the way they were in 2019 rather quickly.
If a Vaccine Is Found in the Not-So-Distant Future
If, however, the discovery of a vaccine is delayed for a year or more, the situation could get significantly more complicated. It’s quite possible that many middle and lower-class homeowners will opt to refinance their mortgages, staying in their current homes longer as a way to cut expenses. And that is without even taking into account the segment of the population that might have considered buying or selling a house in ordinary times, but would be too frightened by exposure to the virus to meet with real estate agents, visit open houses, or hire a moving company to handle their things. Those who do choose to buy and sell property may find themselves heavily reliant on online listings, virtual tours, and open houses conducted through teleconferencing programs.
Lowes claims that if a coronavirus vaccine is more than a year away from practical distribution to the general population, it’s safe to assume there will be a series of major economic contractions, and that will not be good for the real estate industry. Houses will still be bought and sold, money and property will still change hands, but at a greatly reduced rate. The housing market will limp along, perhaps buoyed by some kind of government tax assistance, but the longer the delay in returning to pre-pandemic normalcy, the bigger the hit to the economy and the more the real estate market will suffer.
If a Vaccine Is Not Found Soon or Never Found
The least predictable of the three scenarios is what might happen to the real estate market if a vaccine is not found within the next two calendar years, or if, in fact, one is never found at all. Under such conditions, it’s safe to assume the current trend of people working from home will continue indefinitely. Should that come to pass, it’s not difficult to envision many homeowners making an exodus from dense population centers to more rural or pastoral settings once they realize that permanently telecommuting to work leaves them free to change locations much more easily. If COVID-19 doesn’t dissipate in the foreseeable future, it’s quite possible that countryside, village, and small town real estate will experience a bump in sales while urban real estate experiences a slump. In other words, because of concerns over health and safety, those with the means to leave cities—and even heavily-populated suburbs—may very well do so en masse.
Another consequence of the coronavirus sticking around for longer than anticipated would be the effect it has in hampering potential new owners from buying homes. If the unemployment rate holds steady in the double digits for more than a few years, there is little doubt that the economic recession the United States is just now entering will turn into a depression. At least in theory, that would cause demand to sharply decline, house prices to plummet, and the result would handicap the real estate market for years to come. After all, people don’t purchase property without a reliable source of income. But it’s important to remember that this is a near worst-case outcome.
Although nobody can predict precisely what will happen in the midst of such unprecedented uncertainty, one thing is crystal-clear: the future of the American real estate market is largely dependent on how well the overall economy recovers, which is, in turn, dependent on whether or not a vaccine for COVID-19 is discovered. And if so, how soon.
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