COVID 19 had us all locked in our homes, working on our laptops, living with a lot of uncertainty. On one hand, as remote work took over, we found ourselves suddenly needing more space. On the other hand, economic uncertainty made people more wary of investments.
At the start of the pandemic, the real estate market was in a slump. But very soon, it was back on its feet. A 2023 report by CoreLogic showed that investments in real estate surged in 2021, right in the middle of the pandemic.
What brought about this change? How did COVID change people’s perception of real estate investments? And finally, what does this say about the current real estate market? In this article, we will try to look at all these questions one by one, and uncover the story behind changing real estate trends after COVID.
Factors influencing the real estate market
There are several factors influencing supply and demand forces in the real estate market. Let’s look at some of these factors, and how they changed during the pandemic.
Economic conditions
Economic indicators like GDP, employment rates, inflation, and interest rates reflect the financial health of a country. A 2023 report by USC Schaeffer predicted that COVID’s total cost to the US economy will reach USD 14 trillion by 2023.
This economic uncertainty reflected in the initial months of the pandemic, when there were few upcoming construction projects, and housing sales were in a slump. When the news of COVID first came out, people were slowly grasping the financial implications of the pandemic. When people feel uncertain about something, they tend to go conservative in their investments.
Demographics
Demographics refers to changes in the population of a country. It includes changes in different characteristics of a population like age, gender, ethnicity, and so on. In the USA, millennials and Gen Z population who wish to be homeowners are facing high entry barriers. Those who are homeowners are hesitant to invest in the housing market.
Interest rates
Interest rates reflect how easy it is for people to borrow money, and it reflects how liquid the economy is. Interest rates certainly took a hit during COVID. In 2024, US Treasury Secretary Janet Allen said that market interest rates are unlikely to return to pre-covid levels.
COVID and real estate
The pandemic painted a bleak picture for the US economy. Unemployment was on the rise, people were defaulting on their mortgages, and there was a 67% rise in foreclosure of houses. As the US economy is in the process of recovering from such an upheaval, here are some interesting changes we see in the demand for real estate.
Less interest in urban metropolitan areas
Many people are drawn toward metropolitan cities because of the jobs and lifestyle they offer. During the pandemic, it became apparent that many jobs could be done in a remote mode, over a few calls, emails and meetings. Dingel and Neiman (2020) found that 37% of jobs in the US can be done from home!
Having realized this, many people started to see the benefits of moving away from central urban areas. Frey (2022) noted that an increasing number of people were moving away from metropolitan areas during the pandemic. Gupta and colleagues (2022) found that house price and rent had also declined in the cities.
Prioritizing space
As people were locked inside their homes, they felt like they needed more space. Many people shifted away from urban apartments to more spacious houses away from cities. There was also a decline in household size, meaning that more people wanted to live separately, or in bigger spaces. This put a strain on certain markets, like California.
In California, as more people spread out into separate homes, there was a rise in demand for housing. The number of people per housing unit fell sharply between 2020 and 2022. Vacancy rates declined, and prices of homes and rents increased.
More first time homebuyers, less investors
An April 2020 report by the National Realtors Association showed that first time homebuyers accounted for 36% of all home purchases. On the other hand, investor buyers’ percentage dropped from 11% in February to 10% in April. As we said earlier, when uncertainty strikes, people become conservative in their investments.
Home-work arrangements
Before the pandemic, people would pay more attention to the distance between their house and place of work, so that the commute would be convenient. Now, most people prefer to work from home, if given the option.
So the priorities have shifted; now the focus is on making the existing space equipped enough for a full time job. The amenities and facilities of the space matter more than the location. People are more likely to look for a home office, a gym or an outdoor area, so that their home can sustain all their activities- personal and professional.
Housing market post-COVID
During the pandemic, the Federal Reserve lowered interest rates to encourage people to spend and borrow, and stimulate the economy during this slump. Now that we have ridden out the pandemic, the interest rates are up again.
You could say that investors are now more cautious of real estate investments. Many are stepping away form the housing market, waiting for the rates to lower again, and for housing prices to become more affordable. And, it’s a bit unlikely that it will happen soon.
If you are a real estate investor or a homeowner, we hope this article helped you understand how the COVID pandemic impacted the real estate market, and why things are the way they are now. Thoughtful investments always involve a thorough research on the socio-political context of a country, and the pandemic is the perfect example of how the economy is interlinked with such global developments!
