The ongoing COVID-19 pandemic has resulted in unprecedented changes for many sectors of the global economy. Real estate, like most other markets, is currently in limbo. Though many real estate experts have projected that the housing market would be back on its feet in no time, given last year's record-breaking economic growth, no solid consensus has been met. Still, current evidence shows that for now at least, investors are being forced to rapidly adapt to the immediate changes that have taken their sector by storm.
A Shaky Time Ahead
Perhaps one of the first signs that real estate investment opportunities were slipping through investor's fingers was the sweeping economic losses across the world. Even apart from the market alone, renters and homeowners alike were being either laid off by their employers or were subject to severely reduced work hours.
In the U.S., states such as California, New York, and Nevada are seeing the worst of the widespread job loss, with June unemployment rates at 14.9%, 15.7%, and 15.0% (down from 25.3% in May), respectively. The job and housing market are inextricably tied, and with the increasing volatility of the former, now may not be the best time for investors to set their sights in these areas.
At the very beginning of the U.S. nationwide shutdown, marked by the enforcement of federal and state legislation that emphasized acts to "flatten the curve" and "slow the spread," the housing market showed immediate signs of degradation. In March alone, the number of people that were actively paying their rent dropped by 12%, based on data from the National Multifamily Housing Council (NMHC).
Although this percentage has somewhat recovered, the stability is not expected to last long. Doug Bibby, President of the NMHC, worries that federal action is not coming quickly enough to support the already-unstable housing market:
"The extended unemployment benefits and other government support that have proven critical to keeping apartment residents in their homes expire in just a few days… Members of Congress and [the] Trump Administration… need to understand that unless comprehensive action is taken now… they risk destabilizing the nation's housing market… and turning the ongoing health and economic crisis into a housing crisis."
Even with the $600 weekly unemployment benefit, and the single CARE Act stimulus check that was distributed to American bank accounts several months ago, tenants have been struggling tremendously to keep up with rent. Landlords are controversially gearing up to move forward with waves of evictions as these financial aids expire, and the federal moratorium on evictions comes to an end. As they prepare for new tenants, many have adopted new strategies for showing and selling property.
Notable Changes in U.S. Real Estate, Post-COVID
Not all active participants in the real estate industry are without hope. There are many still looking to buy and sell, and with social distancing mandates still in place, inventive ways of showcasing properties are arising. CBS This Morning featured a demonstration on a virtual home tour with Mark and Lisa Cramer, co-owners of Camber Realty, a practice the couple recently adopted due to in-person property visits being prohibited by the Colorado government.
When asked about how they expect to secure clients with these remote methods, the Cramers assured Barry Petersen, CBS anchor, that a "motivated buyer," whose finances and living circumstances have been affected so profoundly by COVID-19, would absolutely accept the alternative method of virtual viewing. This is perhaps a major takeaway from current real estate investors struggling to find clients during this turbulent time.
Investors will need to keep their eye out not only for buyers who are demonstrably intent on finalizing a purchase (and maintaining the agreement) but on profitable properties as well. For example, given that the restaurant and retail markets are currently struggling, one should not consider real estate investments in these industries at the moment.
In contrast, one sector that is seeing a sharp rise in competition is that of suburban residential property. Stories of individuals scheduling home viewings only to discover a few days later that their options had all but disappeared were circulating as far back as May. Even regions that have seen a decline in sales over the last few years are experiencing a completе 180 in terms of buyer interest – and seller profits.
When it comes to residential properties, COVID-19 has certainly created a seller's market. Many states across the U.S., especially New York, have seen a surge in housing demands, even as millions of people struggle to make rent in their current homes. Westchester alone saw an 18% increase in home purchases in June of this year when compared to the same period of 2019.
Some say that it is the present scarcity of housing that is driving the sudden increase in buyer activity. Greenwich, CT, for example, saw an 8% rise in closing deals on single-family homes, yet a simultaneous drop in available housing by 18.5% compared to the same time last year. Acreage and old homes are making a comeback as well.
How Can Real Estate Investors Adapt to the New Market?
For sellers to take full advantage of these opportunities, they will have to learn to embrace "proptech," a technological advancement in real estate management. This new digital horizon gives real estate investors a brand-new way to optimize how they oversee all facets of their business, from researching a potential property to selling and renting.
Although the novel coronavirus pandemic has resulted in slowed growth of the proptech industry, this digital approach to real estate investment may be the key to getting profits back on track. Experts in this industry predict that, although there have been major transitions to remote collaboration and client service, professionals in both general real estate, and those particular to proptech, will need to embrace an industry-wide shift to tech-based work.
The COVID-19 pandemic has caused a historical transformation of the United States' real estate market. Though some areas seem to be without hope, and many renters struggle to remain in their homes, there is still tremendous opportunity to be realized. The future is uncertain for many areas of the market, yet one thing is certain: Investors will need to transform their approach to property management by adopting remote methods such as those provided by proptech. Neglecting to do so could result in disastrous consequences for both their own and clients' financial well-being.