Amid all the uncertainty brought on by COVID-19 over the past six months, one thing is assured: the pandemic has re-ordered real estate markets across the board on an unprecedented scale.
Some of this may be irreversible.
Thanks to the COVID-19 pandemic, we don’t know if people will feel safer living in the south and southwest where they can spend all year social distancing outside. What if companies let workers work remotely for the rest of their lives?
Why go back to retail shopping when I’m already ordering everything online? What’s the point of living “downtown” if half of the restaurants, bars, and museums never open back up?
How these questions get answered will fundamentally re-order how Americans live in the “new” pandemic normal, and as a result will play a huge X-factor in which cities and states will experience growth, demand, and price appreciation over the next 3-5 years, and which ones will stagnate and lose out.
For large metropolises, the answers risk slowing or even reversing a wave of gentrification and wildly profitable downtown revitalization that’s been accelerating since before the Great Recession.
Against this backdrop, real estate’s new normal is also creating huge swathes of opportunity.
Dozens of cities and counties that were once considered too small, too hot, too flat, or lacking in amenities, culture, or sophistication are now finding themselves being swooned to the top of the real estate desirability lists as Americans seek warmer, healthier, less dense, better educated, and more mobile places to live that offer closer access to the outdoors, better hospitals, and more open space with no clear end to the pandemic in sight.
To get a better view on what’s really happening to real estate in America I decided to do a deep dive into the actual data from the experts—including CoStar, Zillow, and Realtor.com—on how COVID-19’s great migration is actually shaking out and where the money and bodies are moving.
Consensus Among the Masses
No matter who I spoke with, a few words kept resurfacing: warmer, safer, smaller, stabler, lower taxes, less regulation, and fewer lockdowns.
Regardless of where people come from or where they’re going, these things aren’t new. Northeasterners have been moving south and west for generations. The more interesting pandemic sub-text is the acceleration factor—and how the places where Americans are moving in the midst of COVID-19 may finally be expressing a more fundamental preference for how they reallywantto live instead of where they haveto stay because of their job location or where their kids go to school.
The repercussions of America’s great COVID migration has the potential to re-shuffle the essential demographic and economic balance of America for the next generation. REALTORS®, investors, and politicians should be paying attention.
Americans Are Moving Faster
Page-per-property views on real estate platforms like Realtor.com and Zillow are up over 50% year-over-year almost everywhere, inventory in America’s 100 top metro markets has been shrinking since March, along with days on market and the gap between list-to-sale price.
A lot of real estate experts prefer the word “despite” when it comes to accounting for this phenomenon while the pandemic’s still raging, when it’s probably more accurately “because of.”
“Real estate markets have undergone noticeable shifts since the start of the coronavirus pandemic,” George Ratiu, Senior Economist at Realtor.com, said. “In the wake of the lockdowns in March, Americans discovered that existing homes were not adequate for the new work, teach, exercise, cook and live at home reality.
“Based on realtor.com surveys of consumers,” he adds, “we learned that home shoppers are looking for more space, quieter neighborhoods, home offices, newer kitchens and access to the outdoors, traits which have revived a strong interest in the suburbs and smaller metro areas.”
Every Region Wins
Previous recessions and economic shocks tended to pull some regions down while sparing or barnstorming others. This time, so far, every region’s a winner—as Americans put more stock in their quality of life, work, walkability, and community.
Data crunched by Zillow’s research group paints a similar picture of strong regional growth across small cities as well as suburbs within an hour of established major metro areas.
At the top of Zillow’s list as of October 2020, three of America’s hottest real estate markets are in Ohio: Columbus, Cincinnati, and Dayton. Boise and Salt Lake City also made the list, along with Stamford, CT. Austin came in No. 1. Louisville, KY, Memphis, TN, Honolulu, and Des Moines, IA were at the bottom on Zillow’s aggregate list, though Zillow’s economists were quick to point out that in today’s market that means “less good.”
“Even the coolest markets in America right now are generally performing well and tilted in favor of sellers,” says Cheryl Young, senior economist at Zillow. “There’s a lot of demand for housing right now and homes are typically selling quickly for prices above what we were seeing last year. It’s also worth noting that the bottom performers for the most part aren’t decreasing.”
Following the Work
Trends show Americans are also still moving where businesses move, despite the work-from-home trend accelerated by COVID-19. Even if Americans don’t have to show up to the same office every day, the tax base, culture, vibrancy, hospitality backfill, and infrastructure (think school districts) that a thriving business and entrepreneurial community supports long-term is one of the essential underpinnings of a successful residential real estate market.
From this perspective, COVID is accelerating demographic trends that were already in place before the pandemic, especially when it comes to businesses seeking places to expand that are pro-growth, low-tax, politically stable, and stacked with an educated work force in advanced degrees.
Austin, Salt Lake City, Raleigh, Charlotte, Nashville, and San Jose all top the list in 2020 in this respect according to CoStar, with occupied office growth expected to exceed 10% over the next five years. Dallas, Miami, Phoenix, Atlanta, San Antonio, and Boston aren’t far behind—all expected to grow by 8%+ as of Q3 2020 according to CoStar.
“Businesses will continue seeking low-cost alternatives to more expensive coastal markets COVID-19 or not,” says Andrew Rybczynski, Managing Consultant at CoStar. “While COVID and the recession it caused will hurt business growth and office absorption, we expect the structural advantages of many southern and southwestern markets to continue through foreseeable future.”
Low Business Costs, Less Regulation
When Rybczynski refers to “structural advantages,” what he means is governance. Using a simple measure of tax burden, CoStar correlates a rough relationship between lower taxes, pro-business governance, faster growth, and increased in-migration—all of which are currently skewing towards American metro areas with local and state governments that are willing to keep regulations and business costs low in exchange for job growth and economic opportunity.
Overall, Americans appear to be moving during the pandemic for more personal reasons than being simply motivated by employment or corporate relocation.
“The hottest housing markets in the new landscape are cities which offer desirable amenities—larger homes, leafy neighborhoods, access to the outdoors, walkability and proximity to grocery stores—in a more affordable package,” says realtor.com’s Ratiu. “Home buyers still want to be within commuting distance of large employment centers, but with the prevalence of remote work, they are willing to extend the distance from urban downtowns.”
Colorado Springs, Columbus, OH, Topeka, KS, Springfield, VA, and Raleigh, NC also ranked in the Realtor.com platform’s Top 10 in at least three criteria for precisely these more emotional reasons, say Ratiu.
“The current housing market is driven by several noteworthy factors. First, America’s demographics are skewing younger as the Millennial generation—the largest in U.S. history—is finally embracing home ownership.
“Second, the technological promise of the mid-1990s of freeing workers from their desks has come of age in 2020, as the coronavirus-induced quarantine has forced employers to rely on workers working-from-home. Americans have been resoundingly successful at navigating this transition, and in the process, discovered the benefits of shorter commutes and the flexibility of being able to work from anywhere. In turn, this has shifted consumer preferences for housing, driving the transition into suburbs, smaller cities, second-home destinations and even rural areas.
“Third, riding in the wake of a decade’s worth of home price appreciation which has outpaced income growth, many Americans are seeking affordability again, leading many buyers into suburban neighborhoods and away from high-cost, high-density urban downtowns.”
What About California?
Not a single city in California or the Pacific Northwest ranked anywhere near the top of anyone’s “Best Of” lists in terms of where Americans are moving, which suggests that the effects of COVID’s first flight from coastal cities last March may be fossilizing permanently.
New York City, Long Island, northern New Jersey, Honolulu, Chicago, and Philadelphia were also conspicuously in the basement, reinforcing America’s net emotional migration away from high-priced real estate markets as well as high-tax, high-lockdown urban locations.
So what’s the bottom line? The longer COVID-19 continues to push Americans into the “new” normal, the more consumers will be moving south and west, working by the pool. Sometimes it’s worth just rolling with the data.
