New York, N.Y., is a hell of a town — and in a post-COVID world, home buyers may also see it as a hell of a bargain.
Since COVID-19 emerged as a major concern in the first few months of 2020, the pandemic has upended the country’s housing market in many ways. At first, health concerns fueled the digitization of the home-buying process, with some people opting to purchase homes sight unseen apart from virtual tours.
The shift to remote working arrangements for people in white-collar jobs meant that households all across the country could rethink where they lived. This caused a surge in interest in vacation towns, as wealthier Americans opted to purchase second homes to wait out the pandemic.
Meanwhile, the prospect of living in close quarters for months on end while waiting out the pandemic, coupled with record-low mortgage rates, drove millennial households to leave their abodes in major cities for suburbs across the country.
Now, though, as Americans begin to receive the first doses of COVID-19 vaccines, there’s seemingly an end to the pandemic in sight. But just as the pandemic helped to fuel soaring demand among home-buyers, the return to normalcy could fuel property sales in certain parts of the country — but not all local housing markets will benefit equally from the end of the COVID era.
“The strong demographics that were fueling the housing market pre-pandemic will remain in place post-pandemic, which should continue to drive healthy home sales across the country,” said Ali Wolf, chief economist at housing market research firm Zonda. “The markets I’m watching in the vaccine-economy are those that were turbocharged solely due to COVID-19.”
Here are the parts of the country whose housing markets economists say could benefit from the end of the pandemic:
Expensive coastal markets like San Francisco and New York will become popular again
Some of the country’s most-expensive housing markets were already faltering before the pandemic began. In New York “prices have been falling now for the third year in a row,” Nancy Wu, an economist at Zillow ZG, +0.86% subsidiary StreetEasy, told MarketWatch in August.
Even before COVID-19 prompted home buyers and renters to reconsider their living arrangements in the name of comfort and affordability, these markets were stagnating because they had simply become too expensive for most people. On top of that, the pandemic took away much of the appeal of big-city living.
“The pandemic shut down all the reasons people live in cities, whether that was the nightlife, cafés, live music, or information sharing at the office,” Wolf said.
But these markets could see a snap-back. Falling prices — especially when combined with low mortgage rates — make owning in the Big Apple or somewhere like San Jose, Calif., a more feasible proposition.
“Don’t write off the cities,” Wolf warned. “Places like New York City, Los Angeles, and Miami are not dead.”
Newer tech hubs will be attractive to buyers
In its round-up of the top markets for 2021, Realtor.com identified a number of places across the country with burgeoning tech scenes (or markets that were close by). Sacramento, Calif., for instance, claimed the No. 1 spot because homes in the California capital are cheaper than San Francisco or San Jose. By being within a two-hour drive though, tech industry employees could feasibly commute to and from those locales.
Realtor.com’s ranking represents a fusion of markets that are popular now amid the pandemic and those that will be popular in the post-COVID world. Other growing tech hubs on Realtor.com’s list include places like Boise, Idaho, and Denver, which are more affordable than Silicon Valley.
“Affordability is attractive at all points in time,” said Danielle Hale, chief economist at Realtor.com.
“The tech industry will continue to thrive, because even though we probably won’t be 100% remote, the way that many people are right now, remote work has been tested in this pandemic time period and is going to continue to be a feature of white-collar working life for the foreseeable future,” she added. “That’s going to position tech cities to do well.”
Smaller cities in the South and Sun Belt could thrive in a remote-working world
Many markets’ future will depend on whether remote-working becomes the norm or simply a fluke of the pandemic.
Some employers, such as Twitter TWTR, -2.20%, have suggested that they will let their staff work from home indefinitely. Should more companies follow their lead, that’s good news for less-populated cities with warmer climates, Wolf said, noting Tampa, Fla., Phoenix, Raleigh and Jacksonville, Fla., as examples.
“Pre-pandemic, house hunters had to juggle their affordable housing needs with employment opportunities,” she said. “The shift to a more flexible working environment enables markets with housing affordability, good lifestyle, and a favorable climate to be even bigger magnets for newcomers, even after the pandemic ends.”
These regions have also attracted attention from real-estate investors — particularly those who are buying properties in states where they don’t live.
“Out-of-state investors are gravitating toward a daisy chain of often overlooked and out-of-the way markets stringing mostly across the lower Midwest and Southeast,” said Daren Blomquist, vice president of market economics at real-estate website Auction.com.
These investors have dominated in places like Memphis, Tenn., and Augusta, Ga. “Real estate investors on the frontlines of the housing market are rushing to rural markets in anticipation of a population shift toward those markets,” Blomquist added.
Where the jury is out: The Upper Midwest and Rust Belt
The National Association of Realtors put together its own list of the Top 10 markets it expects to thrive during and after COVID-19. The list included some of the usual suspects like Boise and Spokane, for instance.
But some of the other markets are located in parts of the country that don’t frequently get tossed around as hot real-estate locales: Des Moines, Iowa, Indianapolis and Madison, Wis.
“We anticipate you will see migration away from Western cities or coastal cities,” the National Association of Realtors’ chief economist Lawrence Yun said during a forecasting summit earlier this month. “People have divergent opinions about which markets would do well.”
Which cities will see a housing boom will also depend on the diversity of their workforces. The economies in Midwestern and Rust Belt locales are still heavily dependent on sectors like manufacturing. These industries haven’t necessarily seen the same upheaval that sectors in cities like New York have thanks to the rise of remote working, but that doesn’t mean those places will grow in popularity following COVID.
“It’s the markets that lack job diversity and lifestyle that are the ones that are more likely to suffer in the coming years,” Wolf argued. A good example of this is Orlando: While the pandemic forced the city’s tourism sector to all but shut down for much of 2020, Central Florida’s housing market has remained strong.
That’s because under the surface, there’s more diversity in employment in that part of the Sunshine State than many assume. “People employed along the Space Coast, for example, are still working and are fueling solid home sales in Orlando, especially among the higher price points,” Wolf said.
That’s the same reason Houston has managed to weather the peaks and valleys of the oil market — while the petroleum industry is a major employer there, the city’s workforce is diverse enough to withstand those pressures.
But Midwestern and Rust Belt cities do have one big thing going for them: They’re cheap.
“In this current environment, low mortgage rates are creating opportunities, almost regardless of what’s going on with local economies,” Hale said. “But if mortgage rates begin to rise, as we expect they will as the economy bounces back, you might see that hurt higher-price markets more. And since a lot of manufacturing is concentrated in areas where real-estate is relatively affordable you might see those markets outperform.”