Despite early indications that the COVID-19 pandemic would drastically affect the housing market — and overall economy — home buyer demand has rebounded swiftly since its initial COVID-related low point in April.
Just because the market has recovered, however, doesn't mean there won't be some long-term effects on the industry and market.
Gen Zers will buy homes even later
Generation Z includes those born after 1996 and range from 5 to 24 years old in 2020. While this includes a wide demographic, it includes college students and recent graduates.
Forty-eight percent of college students have taken out more student loans this year as a result of the pandemic, including 33% who are taking out at least $10,000 more in 2020 than 2019. Real Estate Witch's study found that 56% of college students lost a full- or part-time job as a result of the pandemic, and 36% said a parent lost income, which directly impacted their ability to pay for school.
Generation Z has already shown signs of purchasing a home later in life than past generations, and these extra loans will push this timeline even further back. We may see even more recent graduates move back in with parents to save up their down payment, live with roommates to save on bills, and maybe even skip the starter home phase altogether.
Also, some predict Generation Zers will be looking for smaller homes in the suburbs or even beyond, where home prices are more affordable. Expect digital native home buyers to use Zillow or Redfin estimators to determine the price of a home and find cheaper areas to live.
Full-on adoption of digital transactions
The housing industry has adapted quickly to a world of shutdowns and social distancing. In fact, at the start of the pandemic, the National Association of REALTORS® pushed Congress for legislation that would pave the way for remote notarizations nationwide.
This means remote closings would be possible with the notary verifying identities through video chats and photo identification. For mortgage lenders, this means a fully remote process, from application to signing of papers.
Along with this change, real estate agents have also adopted virtual tours, 3D walk-throughs and scheduling single party tours through more efficient scheduling software.
Even when in-person interactions are completely safe post-pandemic, business transactions could continue to be increasingly digital.
Moving away from cities
Many people predict the pandemic will make less-dense suburbs and rural areas more attractive to homeowners. Rural communities haven’t been spared from the coronavirus — in fact, in some areas, their infection rates have been higher. However, these areas don’t depend as greatly on the services and amenities largely affected by COVID-19 — things like public transportation, high-rise office buildings, and large schools.
Additionally, the pandemic has left those in lockdown searching out more of the basics of life and returning to their roots. Gardening, for example, has become more popular, as evidenced by busy greenhouses and stores selling out of canning supplies.
In addition, more people are traveling to remote areas to vacation, hike, or just escape their home while enjoying the solitude and social distancing. Camper and RV sales have been through the roof.
We don’t predict a mass exodus leaving bustling cities desolate, but some people may develop a new routine and even a preference for spending time in nature and less densely populated areas. This may play into their future home-buying plans.
Proximity to work may lose importance to home buyers
Remote work increased 44% from 2015, even before the pandemic. Starting in March 2020, most businesses that could reasonably do so have allowed employees to work from home in order to cut down on potential infections. Employers — and employees — were essentially forced to adapt to this work-from-home life, and many have seen that businesses can still function and even be more efficient with reduced overhead and more balanced employees.
As a result of the pandemic, many companies (such as Twitter) are even giving employees the option to work remotely permanently. People increasingly won't be tied to living in close proximity to their office and can truly live wherever they want, as long as they have a strong Wi-Fi connection.
As people are no longer tied to living where they work, they might start moving from states with high real estate commissions, like Florida, to get the best deal possible on their home.
More investors may move to real estate
The U.S. is at risk of a worsening recession due to the pandemic. About half of the National Association of Business Economics members don’t expect the gross domestic product (GDP) to return to its pre-pandemic level until 2022 at the earliest. About 80% say there is a one-in-four chance of an economic downturn that begins to recover yet worsens again before fully recovering.
With that prospect, investors may begin moving their money away from more risky options, instead investing in real estate — an investment that is less sensitive to volatility. These investors may also be looking to take advantage of foreclosed homes or people renting longer due to job loss or increased debt as a result of the pandemic.
The housing market is quite durable
The exact long-term effects on the housing market is only speculation and highly dependent on how long the virus sticks around, but the housing industry has historically been very resilient. Although home prices and interest rates do fluctuate some, the flow of the housing market continues. In fact, spending more time in their homes may cause people to want to upgrade or have more time to consider a move.
Regardless of the state of the economy, people’s life stages continue to move on — students continue to graduate and (at some point) leave their parents' house, young couples continue to have children and upgrade to a bigger space, and retirees continue to downsize or move to retirement homes. These all necessitate homes being bought and sold.
Dr. Francesca Ortegren, Ph.D. is a Research Associate at Clever Real Estate where she focuses on helping people understand complex data, real estate, finances, business, and the economy by researching various topics, analyzing data, and reporting useful insights for general consumption.
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