New York, NY, is a great city – and in a post-COVID world, home buyers can consider it a bargain too.
Since COVID-19 emerged as a major problem in the first months of 2020, the pandemic has turned the country’s housing market upside down in many ways. Initially, health concerns digitized the home buying process, with some people choosing to buy homes that had gone unseen apart from virtual tours.
The shift to remote working arrangements for white-collared people meant households across the country could rethink where they lived. This spurred interest in vacation towns as wealthier Americans chose to buy a second home to await the pandemic.
Meanwhile, the prospect of living in the neighborhood for months in anticipation of the pandemic, coupled with record-high mortgage rates, drove millennium households to abandon their cities of residence for suburbs across the country.
However, as Americans begin to receive the first doses of COVID-19 vaccines, the pandemic seems to be coming to an end. But just as the pandemic has helped fuel rising demand among home buyers, the return to normalcy could boost property sales in certain parts of the country – but not all local housing markets will benefit equally from the end of the COVID era.
“The strong demographics that fueled the pre-pandemic housing market will persist beyond the pandemic, which should continue to drive healthy home sales across the country,” said Ali Wolf, chief economist at research firm Zonda. “The markets I’m looking at in the vaccine economy are the ones that got a turbocharger only thanks to COVID-19.”
Here are the parts of the country that housing economists say could benefit from the end of the pandemic:
Expensive coastal markets such as San Francisco and New York will regain popularity
Some of the country’s most expensive housing markets were faltering before the pandemic started. In New York, “prices are now falling for the third year in a row,” said Nancy Wu, an economist at Zillow ZG,
subsidiary StreetEasy, MarketWatch told August.
Even before COVID-19 prompted home buyers and renters to rethink their living situation in the name of comfort and affordability, these markets stagnated because they had simply become too expensive for most people. Moreover, the pandemic took away much of the appeal of big city life.
“The pandemic ended all the reasons people live in cities, be it nightlife, cafes, live music or information sharing in the office,” said Wolf.
But these markets can regress. Falling prices – especially when combined with low mortgage rates – make ownership in the Big Apple or somewhere like San Jose, California, a more viable proposition.
“Don’t write off the cities,” Wolf warned. “Places like New York City, Los Angeles and Miami are not dead.”
Newer tech hubs will appeal to buyers
In its summary of the top markets for 2021, Realtor.com identified a number of places across the country with burgeoning tech scenes (or markets that were close by). Sacramento, California, for example, claimed the No. 1 spot because homes in California’s capital are cheaper than San Francisco or San Jose. However, being within a two-hour drive allowed workers in the tech industry to commute feasibly to and from those locations.
Realtor.com’s ranking represents an amalgamation of markets that are popular right now amid the pandemic and markets that will become popular in the post-COVID world. Other growing tech hubs on Realtor.com’s list include places like Boise, Idaho, and Denver, which are cheaper than Silicon Valley.
“Affordability is always attractive,” said Danielle Hale, chief economist at Realtor.com.
“The tech industry will continue to thrive because while we probably won’t be 100% remote as many people are now, remote working has been tested in this pandemic period and will remain a function of serving life for the foreseeable future, She added. “That will position tech cities to do well.”
Smaller towns to the south and Sun Belt could thrive in a remote working world
The future of many markets will depend on whether remote working becomes the norm or just a fluke of the pandemic.
Some employers, such as Twitter TWTR,
have suggested that they let their staff work from home indefinitely. Should more companies follow suit, that’s good news for less populated cities with warmer climates, Wolf said, citing Tampa, Florida, Phoenix, Raleigh and Jacksonville, Florida as examples.
“Pre-pandemic, home seekers had to combine their affordable housing needs with employment,” she said. “The shift to a more flexible work environment allows markets with affordable housing, good lifestyles and a favorable climate to be even greater magnets for newcomers, even after the pandemic has ended.”
These regions have also caught the attention of real estate investors, especially those buying real estate in states where they don’t live.
“Out-of-state investors are leaning towards a daisy chain of often-overlooked and remote markets spanning mostly the lower Midwest and Southeast,” said Daren Blomquist, vice president of market economics at the Real Estate Web Site Auction. com.
These investors have dominated places like Memphis, Tennessee and Augusta, Georgia. “Real estate investors at the forefront of the housing market are rushing to rural markets in anticipation of a population shift to those markets,” Blomquist added.
Where the jury is out: The Upper Midwest and Rust Belt
The National Association of Realtors has compiled its own list of the Top 10 Markets Expected to Thrive During and After COVID-19. The list included some of the usual suspects, such as Boise and Spokane, for example.
But some of the other markets are in parts of the country not often tossed around as popular real estate locations: Des Moines, Iowa, Indianapolis, and Madison, Wis.
“We expect you to see migration away from western towns or coastal cities,” said National Association of Realtors chief economist Lawrence Yun at a forecast summit earlier this month. “People have different opinions about which markets would do well.”
Which cities will see a housing boom also depends on the diversity of their workforce. The economies in the Midwestern and Rust Belt regions still rely heavily on industries such as manufacturing. These industries haven’t necessarily experienced the same turmoil that industries in cities like New York have due to the rise of remote working, but that doesn’t mean those places will grow in popularity after COVID.
“It is the markets with a lack of job diversity and a lack of lifestyles that will suffer the most in the coming years,” said Wolf. A good example of this is Orlando: While the pandemic was supposed to shut down the city’s tourism industry for nearly all of 2020, the housing market in Central Florida has remained strong.
That’s because beneath the surface there’s more diversity of employment in that part of the Sunshine State than many think. “For example, people who work on the Space Coast are still working and making solid home sales in Orlando, especially at the higher prices,” said Wolf.
That’s the same reason Houston has managed to weather the peaks and troughs of the oil market – while the petroleum industry is a major employer there, the city’s workforce is diverse enough to withstand those pressures.
But cities in the Midwestern and Rust Belt have one big thing – they’re cheap.
“In this current environment, low mortgage rates are creating opportunities almost regardless of what is going on with the local economies,” said Hale. “But if mortgage rates start to rise, as we expect them to rise as the economy picks up again, you could see that this hurts more expensive markets more. And since a lot of production is concentrated in areas where real estate is relatively affordable, you could see those markets doing better. “