What’s Going on in Real Estate?
Overall, the U.S. residential real estate market has held up fairly well so far during the global pandemic. Industry experts say that the current economic decline is expected to affect retirement a bit differently than the Great Recession, largely due to housing prices remaining strong in many areas of the country.1
One reason is because, early on, the CARES Act mandated forbearance relief for homeowners with federally backed mortgages (eg., FHA, VA, USDA, Fannie Mae and Freddie Mac).2
According to McKinsey & Company, the housing and construction industry has suffered from problems ranging from reduced demand to supply-chain issues. However, the firm believes that the real estate industry can emerge from the economic decline even stronger after the coronavirus crisis. The problem — as it is for most other industries — is how long will it take to contain the virus and re-energize the economy.
The McKinsey Global Institute estimates that in the current circumstances, the economy could be back on track by 2021. However, additional lockdowns and restrictions could mean that the economy may not return to 2019 levels until 2023 at the earliest.3
From a demographic point of view, pandemic or not, the housing cycle is on tap to experience new demand throughout the next 10 years. Many Millennials have finally hit their stride in the work world after holding off on buying a home until they were on stronger financial footing. In some cases, they are wanting to leave large metropolitan areas, looking instead at smaller, rural areas for affordability.4
Speaking of Millennials, they are now largely considered a driving force in the residential real estate market. In 2018, young adults represented the largest share of home buyers at 37%. High-earning Millennials are even dipping their toes into the luxury market. As part of this trend, they favor luxury condos, communities that promote healthy living and technology-enabled home offices.5
The home office is another influence of the pandemic that is impacting commercial real estate as well. Now that many companies recognize that their white-collar employees can simply work from home, this changes how they view the necessity of expensive office buildings and corporate headquarter campuses. In the future, we may see corporations cut their overhead dramatically in a move that could have long-term repercussions in commercial real estate.6
1 Kim Blanton. Center for Retirement Research at Boston College. July 21, 2020. “Pandemic Puts More Retirements at Risk.” https://squaredawayblog.bc.edu/squared-away/pandemic-puts-more-retirements-at-risk/. Accessed Aug. 5, 2020.
2 Consumer Financial Protection Bureau. July 1, 2020. “Learn about mortgage relief options and protections.” https://www.consumerfinance.gov/coronavirus/mortgage-and-housing-assistance/mortgage-relief/. Accessed Aug. 5, 2020.
3 McKinsey & Company. May 8, 2020. “How construction can emerge stronger after coronavirus.” https://www.mckinsey.com/industries/capital-projects-and-infrastructure/our-insights/how-construction-can-emerge-stronger-after-coronavirus. Accessed Aug. 5, 2020.
4 Merrill Lynch. May 2020. “Welcome To Phase II — The Bridge.” https://olui2.fs.ml.com/Publish/Content/application/pdf/GWMOL/Viewpoint_May20_Merrill.pdf. Accessed Aug. 5, 2020.
5 Diane Hartley. RISMedia. July 15, 2020. “Millennial Home-Buying Trends in the 2020 Luxury Real Estate Market.” https://rismedia.com/2020/07/15/millennial-home-buying-trends-2020-luxury-market/. Accessed Aug. 5, 2020.
6 Andrea Felsted. Advisor Perspectives. July 28, 2020. “Working From Home Is Terrible News for Landlords.” https://www.advisorperspectives.com/articles/2020/07/28/working-from-home-is-terrible-news-for-landlords. Accessed Aug. 5, 2020.
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