How Coronavirus Could Reshape the Housing Market, Part II
By Bill Primavera
Last week, I detailed a few ways that the coronavirus may impact the housing market. In the second part of this column, here are several more potential consequences.
- Rents will fall for some, but finding units that are affordable will be hard. Before COVID-19, affordable rentals and homes for sale were already in short supply across many markets. In 2019, a quarter of all renter households spent half of their income on rent.
Fewer people moving means fewer homes available. With both pandemic and policy keeping people in place, affordable units will become even more rare through the 2020 peak season.
Luxury apartment inventory, on the other hand, which has led the construction recovery since the Great Recession, may soon be plentiful. The number of multifamily units permitted in the last three years has set a 30-year record. Most of these new communities will cater to the higher end of the rental market and many will become available in the next year.
A coronavirus recession, however, will slow the growth of high-income renters searching for this inventory. Once we reach recovery, supply competition will drive prices down at the higher end of the market, creating deals for those high-income households still looking to move.
- Housing inequality will grow. Uneven growth in housing costs has exacerbated income inequality in the U.S. since the Great Recession. Since 2008, the bottom 10 percent of earners have seen their housing costs rise, while the richest quarter of the population has actually seen their housing costs fall.
The pandemic’s economic effects are likely to accelerate this trend. Over the next two years, higher earners will take advantage of low borrowing costs for refinancing and abundant luxury rental inventory, while lower-income households will struggle with economic uncertainty and even greater competition for an already tight inventory.
Moreover, as shelter-in-place orders cover a growing share of the nation, those who are able to work remotely are at a distinct economic advantage. Unfortunately, a correlation between income and the ability to work from home reveals that the lowest earners will be hit hardest by these measures.
Among full-time workers whose salary is over $100,000, 52 percent say that they are able to work from home, but the same can be said for just 15 percent of those earning less than $25,000.
- Homeownership plans will have to wait for many young renters. Last year, we estimated that nearly half of millennial renters who planned to purchase a home had saved nothing for a down payment. The other half has likely seen a significant hit to their savings in the past few weeks. Home values, however, are unlikely to fall significantly because (1) low mobility leads to low available supply on the market and (2) home values may still capitalize optimism about a strong recovery. The result is that many young renters will delay homeownership even further. For Gen Z, who came of age during the longest economic expansion on record, this pandemic will shape expectations and outcomes. This cohort has been touted for their strong preference for homeownership, but the class of 2020 will need to face the economic effects of graduating during a recession. Their views and behavior may ultimately differ significantly from what their teenage-year survey responses implied.
- The rise of sight-unseen housing choices will accelerate. Many families will still need to move in 2020, and those that do will be more likely to move into a new home sight-unseen than ever before. Many apartment communities are already enabling virtual tours in response to the pandemic, and many renters and owners may soon be evaluating their next home through a tablet screen. Mainstream adoption of sight-unseen moves will bring both opportunities and challenges for the housing market.
The good news is that technological innovation has the potential to enable seamless transactions that do not require in-person visits. The widespread use of these tools is likely.
The bad news to watch out for is that sight-unseen transactions have, in the past, attracted elevated levels of rental fraud. Buyers and renters will need to stay alert, do their research and work through trusted platforms to stay safe at a time when individual verification will be challenging.
In the last release of the American Housing Survey, one in three movers cited wanting to upgrade their home as their reason for moving. In fact, this was the most common reason among survey respondents who had moved during the past year. Such upgrade moves will likely wait.
Bill Primavera is a public relations practitioner (www.PrimaveraPR.com) who also is a realtor associated with William Raveis Real Estate (www.raveis.com). To engage the marketing and real estate services of The Home Guru to market your home for sale, call 914-522-2076.
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