At the start of 2020, real estate experts had a notion of what was up next. They’d identified a set of cities primed for real estate investments and made projections regarding sales trends. Then, COVID-19 struck and everything went sideways. The economy crashed, unemployment rates skyrocketed, and cities and towns across the United States shut down in an attempt to contain disease spread. From a public health perspective, it was a nightmare, but through the lens of real estate, things were not as disastrous as they might have seemed – especially in the suburbs.
Since the start of the COVID-19 pandemic, there have been several key factors that have come together to keep the real estate market moving – in particular, falling interest rates. That fact, in combination with the restrictive nature of living in a city during a pandemic, has served to fuel home sales and even bolster investments at a time when other businesses are struggling.
A Good Time To Buy
One of the most common steps the Federal Reserve takes when the economy is struggling is to decrease interest rates. This encourages lending and, as a result, spending that can boost consumer confidence and trigger a recovery. It’s no surprise, then, that when the pandemic began, the Fed actually pushed interest rates down to historic lows, with the result being a spike in suburban mortgage applications. Anyone familiar with the housing market knew they wouldn’t see rates like this again any time soon.
Of course, lowered interest rates can’t necessarily counter job losses, which is one reason why some people have been surprised by the real estate industry’s success at this time. For example, Houston has seen some of the most significant joblessness numbers in the country. This issue has primarily impacted renters, however, allowing people with secure jobs and sufficient income to take the leap and become homeowners, particularly by moving to the suburbs.
It’s not just low interest rates that have driven the increase in homeownership. After a decline in sales during the first few months of the pandemic, suburban purchases spiked as city dwellers – tired of being cooped up in overpriced, crowded apartments – decided it was time to decamp to greener pastures. In particular, urbanites with children felt like it was untenable to remain in the cities and, for those who weren’t so wealthy as to have vacation homes to retreat to, a move was the only option.
The likelihood that people would be working from home for the foreseeable future, and that children of all ages, including college students, could be attending school from home has also played a role in these relocations. Most apartments don’t have room for a home office – and certainly not multiple home offices. Buying property was a way of making room for a new way of life.
Katy: A Case Study
Many suburbs have seen a spike in home sales, but some have had a particularly sharp increase, Katy, Texas among them. Area experts cite several key reasons for this. First, even relative to other suburbs, Katy has an abundance of green spaces and outdoor amenities that make it possible for people to exercise, explore, and even socialize with minimal risk. The city is also close enough to Houston for people working in the city to commute post-pandemic, but Katy is comparatively affordable, whereas Houston is one of the most expensive cities in the US.
Another reason that Katy has done well as a relocation destination is that it had a rapidly growing job market pre-pandemic. Many of these jobs are in manufacturing, healthcare, and other stable industries, and a number of companies have signed commercial real estate contracts there, even since the start of the pandemic.
Job prospects in Katy may be good enough, taken in combination with low mortgage rates, to encourage investors to purchase residential properties in the area. Though this isn’t a great time for rental properties in general – many landlords are struggling to fill their vacancies – larger, suburban rentals do still have an advantage. In terms of space, these rentals are much more affordable, which could attract middle income tenants who aren’t ready to buy, without forcing them to spend more money.
Finally, investors can even ensure the stability of their properties by working with a property management company. According to Green Residential, which works with Katy-area owners, they provide rent default insurance to protect owners’ income, preventing financial shortfalls. Taken together, these trends suggest that, at least in the right areas, the pandemic can still create opportunities for homeownership and real estate investment.
The Big Picture View
Some suburbs may be thriving in the midst of the pandemic, but it’s important for anyone looking at real estate during this time to carefully research their chosen area, as pre-pandemic conditions, along with other local traits, are an important factor. Areas with lagging job markets pre-pandemic make poor investments, no matter how far home prices fall. And in some areas, suburban home prices aren’t falling – they’re actually rising.
Given the complexity of current economic and public health conditions, it may be helpful to reframe homeowners’ suburban flight as less the result of the pandemic proper, and more closely tied to homeowners’ reconsidering what they value. Cities have always been a status symbol and, for some, they always will be. For others, though, cities were little more than an expensive default, and the pandemic has allowed them to consider other options. Suddenly, open space seems more valuable than museums, room to stretch out more valuable than public transit.
We won’t fully understand the impact of the COVID-19 pandemic on the real estate market and overall residency trends for several years, at least until the economy finds its new normal. As more people face the reality that they’ll be working remotely at least part time for many years to come, though, the suburbs are likely to remain appealing. While some will always cling to cities, some former city dwellers now have a clearer view of what life could be like. And if that’s a choice between a small apartment in a city where disease can spread unchecked with great speed and a suburb where they can enjoy their family’s company – well, that’s not a choice at all.