5 Ways Real Estate Will Change When the Pandemic Ends

Few accurately predicted the ways in which coronavirus would impact the housing market—from intense bidding wars, to surging home values, to growing interest in suburbs, and more. But that’s not stopping some from speculating about what’s to come post-COVID.

Increased inventory and fast-rising rent prices could be on the horizon, according to Daryl Fairweather, chief economist at Redfin. If any indication of what’s truly ahead, real estate investors have cause for celebration. Read on to find out what else Fairweather is forecasting post-pandemic.

What Will Happen to the Housing Market After the Pandemic?

A recent report from Redfin details five ways the real estate market may change “once most Americans are vaccinated and the economy fully reopens.”

1. Mortgage rates will rise, resulting in decreased buyer demand and slower home price appreciation.

Are you ready to take a trip, go out on the town, or attend a party? Who isn’t? Odds are, most people are feeling the itch to socialize. This will amount to more money being directed toward entertainment and less toward making a home purchase, Redfin predicts.

Further, economic stability will likely amount to mortgage rates bouncing back to around 3.5% for a 30-year fixed. “[S]ome people will look at how expensive homes have become and hold off. As a result, home values will rise about 5% per year, which will be more in line with the growth of the overall economy”—a stark contrast to the double-digit growth enjoyed by homeowners over the past year.

Redfin adds: “Since the economy is already doing better than many economists anticipated, there is a
small risk that the trillion-dollar stimulus package could inject too much money into the economy and
cause inflation and even higher mortgage rates of over 4%.”

2. More inventory will hit the market.

Once COVID-19 is in the rearview mirror, Redfin foresees a 10% uptick in new listings. Why? Per the report: “More homeowners will decide to list in order to cash in on high home prices. And a small portion of those who were reluctant to sell during the pandemic because of fear of exposure to the coronavirus will be ready to list once vaccinated.”

Plus, consider the impacts of mass layoffs and shuttered businesses in 2020. “Some homeowners who have been in forbearance will want to sell once forbearance ends to pay off their missed mortgage payments,” Redfin concludes.

While inventory is almost sure to trend upward from 2021’s record lows, it’s unlikely to rebound to pre- pandemic levels anytime soon. As of early April, the overall number of houses listed is down 5% year over year, with new listings down a whopping 12%. And new buyers who locked in dirt cheap mortgage rates won’t be moving in the near future.

3. Condos will be in high demand.

Condos, particularly those in downtown areas, fell out of favor in pandemic times. Shared halls, elevators, and amenities make social distancing nearly impossible, after all. As such, Redfin found they were selling at a 17.3% discount compared to single-family homes—the biggest price cut since 2013.

However, as offices reopen and business returns to usual, downtowns will regain their allure. Condo prices are likely to rebound at a fast clip as a result.

“If you want to buy a condo, now is the time,” said Seattle Redfin agent Ben Stanfield. “I tell my buyers that if they’re open to looking at condos, we have the ability to negotiate on price and include favorable offer terms like an inspection contingency or a long escrow period. My personal opinion is that the condo market will start to see signs of life coming back in around October.”

4. Suburbs will take on the look and feel of bustling cities.

Despite the pandemic ending, some employees will continue to work from home; others may find themselves in hybrid work situations, remaining at home part of the time. This means newfound habits of frequenting in-town cafes and lunch spots will hold strong, attracting even more businesses to suburban settings.

“For example, Starbucks is closing stores in urban areas while opening new stores in the suburbs, and small businesses in cities are recovering at a slower pace than small businesses in the suburbs,” Redfin notes.

This trend will solidify the appeal of suburban life for those who fled cities in the wake of the virus. If and when they “have it all—schools, parks, restaurants, coffee shops, and bars,” home values there will rise, too.

5. Rent prices will increase.

If buying a home indeed becomes more expensive, guess what? More people will be looking to rent instead. Increased rental demand equates to increased rental rates, plus decreased vacancies (and a collective sigh of relief among landlords!).

“Rents in expensive job centers like Manhattan and San Francisco will likely stay below pre-pandemic levels because remote workers will have more options for places to live away from their corporate headquarters,” Redfin predicts. “But in popular migration destinations like Austin and Atlanta, rents will increase more quickly because even more people will want to live in these less expensive cities when the economy is fully open and safe.”

In addition, short-term rentals will continue to enjoy the popularity they have been experiencing the past year—and then some. Not only will more folks be vacationing, but the nomadic lifestyle of working from the road (often in vacation destinations) will continue to gain traction. This will amount to an uptick in short-term rental rates, as well as a growing interest in short-term rentals among investors.

To view the full report, including charts and methodology, visit: https://www.redfin.com/news/ways-housing-market-will-change-after-pandemic/.

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