These U.S. real estate markets are poised for a post-pandemic boom
New York, NY is a hell of a good city – and in a post-COVID world, home buyers can see this as damn good business too.
Since COVID-19 became a major problem in the early months of 2020, the pandemic has stimulated the country’s property market in many ways. First, health concerns drove the digitization of the home buying process, and some people turned to home buying that couldn’t be seen other than virtual tours.
The move to remote working regulations for white-collar workers meant households across the country could rethink where they lived. This sparked a surge in interest in vacation towns as wealthier Americans turned to buying second homes to wait for the pandemic.
The prospect of living in confined spaces for months while waiting for the pandemic, and record-low mortgage rates, caused millennial households to move out of their homes in major cities in suburbs across the country.
However, now that Americans are getting the first doses of COVID-19 vaccines, the end of the pandemic appears to be in sight. But just as the pandemic helped fuel rising demand from home buyers, a return to normal could fuel property sales in certain parts of the country – but not all local property markets will benefit equally from the end of the COVID era.
“The strong demographics that fueled the property market prior to the pandemic will persist after the pandemic, which should continue to lead to healthy home sales across the country,” said Ali Wolf, chief economist at property research firm Zonda. “The markets I watch in the vaccine industry are the ones that have been charged solely because of COVID-19.”
Here are the parts of the country that economists say could benefit from the end of the pandemic:
Expensive coastal markets like San Francisco and New York are becoming popular again
Some of the most expensive property markets in the country had stalled even before the pandemic began. In New York, “prices have now fallen for the third year in a row,” Nancy Wu, an economist at Zillow ZG, + 0.86% subsidiary StreetEasy, told MarketWatch in August.
Even before COVID-19 caused home buyers and renters to rethink their living conditions in the name of comfort and affordability, these markets stagnated because they had simply become too expensive for most people. In addition, the pandemic has severely damaged the appeal of big city life.
“The pandemic has eliminated all reasons why people live in cities, be it the nightlife, cafes, live music or the exchange of information in the office,” said Wolf.
But these markets could experience a setback. Falling prices – especially when combined with low mortgage rates – make owning in the Big Apple or a location like San Jose, California more viable.
“Don’t write off the cities,” warned Wolf. “Places like New York City, Los Angeles and Miami are not dead.”
Newer tech hubs will be attractive to buyers
In its roundup of the top markets for 2021, Realtor.com identified a number of locations across the country with burgeoning tech scenes (or markets nearby). Sacramento, California, for example, came in first because homes in the California capital are cheaper than San Francisco or San Jose. Technology workers could commute to and from these locations within a two-hour drive.
Realtor.com’s ranking represents an amalgamation of markets that are currently popular amid the pandemic and those that will be 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 are unlikely to be 100% removed, as is the case with many people right now, remote working has been tested during this time of the pandemic and will continue to be a feature of the working life of employees for the foreseeable future, ”she added. “That will enable technology cities to do well.”
Smaller cities in the south and in the sun belt could thrive in a remote working environment
The future of many markets will depend on whether remote working becomes the norm or just a coincidence of the pandemic.
Some employers like Twitter TWTR, -2.20%,
have suggested that they let their employees work from home indefinitely. If more companies follow suit, this is good news for less populated cities with warmer climates, Wolf said, citing Tampa, Florida, Phoenix, Raleigh, and Jacksonville, Florida as examples.
“Before the pandemic, house hunters had to balance their affordable housing needs with job opportunities,” she said. “Moving to a more flexible work environment enables markets with affordable housing, good lifestyles and a favorable climate to be even bigger magnets for newcomers even after the end of the pandemic.”
These regions have also caught the attention of property investors – especially those buying property in states they do not live in.
“Out-of-state investors gravitate towards a number of often overlooked and remote markets, mostly stretching across the lower Midwest and Southeast,” said Daren Blomquist, vice president of market economics for real estate website Auction. com.
These investors have dominated in places like Memphis, Tennessee and Augusta, Georgia. “Real estate investors at the front of the real estate market are pushing rural markets in anticipation of a population shift towards these markets,” added Blomquist.
Where the jury is out: The Upper Midwest and the Rust Belt
The National Association of Realtors has put together its own list of the top 10 markets expected to flourish during and after COVID-19. The list included some of the usual suspects like Boise and Spokane.
However, some of the other markets are in parts of the country that aren’t often tossed around as hot real estate areas: Des Moines, Iowa, Indianapolis, and Madison, Wis.
“We expect you will migrate from western cities or coastal cities,” said National Association of Realtors chief economist Lawrence Yun during a forecasting summit earlier this month. “People have different opinions about which markets would do well.”
Which cities will experience a real estate boom also depends on the diversity of their workforce. The economies in the Midwestern and Rust Belt regions remain heavily dependent on sectors such as manufacturing. These industries haven’t necessarily seen the same upheaval as sectors in cities like New York thanks to the rise in remote working, but that doesn’t mean these places are becoming more popular after COVID.
“It is the markets that lack job diversity and lifestyle that are more likely to suffer in the years to come,” argued Wolf. Orlando is a good example of this: while the pandemic nearly paralyzed the city’s tourism sector for much of 2020, the real estate market in central Florida remained strong.
That’s because there is more employment diversity beneath the surface in this part of the Sunshine State than many assume. “The people employed on the Space Coast, for example, are still working and making solid home sales in Orlando, especially amid 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 the pressure.
But the cities of the Midwest and the Rust Belt have one big thing going for them: they’re cheap.
“In this current environment, low mortgage rates offer opportunities almost regardless of what’s going on with the local economy,” said Hale. “But if mortgage rates start to rise, as we expect when the economy recovers, it could hurt the markets more with higher prices. And since much of the manufacturing industry is focused on areas where real estate is relatively affordable, you can find these markets are outperforming. “