State of the Industry: The 2020 Housing Market
So far, 2020 has been a year unlike any other. With the end of the year just around the corner, the promise of going back to "normal" seems shaky at best.
Millions of Americans are facing massive income loss and widespread unemployment, and almost every industry has been forced to adapt in one way or another. The real estate industry is no exception—but how does the housing market look as we enter the last quarter of the year?
The Economy, Unemployment, and the Housing Market
After a record period of expansion in the U.S., February 2020 saw the beginning of stay-at-home orders and business closures across the nation. The National Bureau of Economic Research announced that the U.S. officially entered a recession in February, or a significant decline in economic activity spread across national sectors. Unlike previous recessions caused solely by economic weakness, the current recession is specifically related to the impact of the pandemic.
A monumental decline in employment and production quickly spread across the country and continues to impact the various real estate market sectors. Although the unemployment rate appears to be slowly improving, the jobless rate is still higher than it's ever been in the past 70 years. Unemployment concerns and changing unemployment benefits are leaving a large segment of U.S. homeowner populations vulnerable to evictions, foreclosures or other issues.
Changes in the Real Estate Market
Despite economic upset and a clear slowdown at the onset of the pandemic, recent data shows that the U.S. is experiencing one of the most competitive real estate markets in recent history. Predictions for the rest of the year still vary across the board, but certain housing markets are seeing a monumental increase in sales activity and home sale prices.
Home prices are continuing to rise while inventory fluctuates in more desirable areas. The remote work trend has given many Americans the opportunity to leave high-density, metropolitan areas, and relocate to areas with a lower cost of living and more leisure/lifestyle options. Other homeowners who may be struggling with mortgage payments or concerns about financial stability are on the move in search of better employment opportunities and/or more affordable housing options.
The months to come will tell us a lot about how the real estate market will behave in 2021, but some are predicting home price growth to flatten and see a lag in home prices as the impact of a recession catches up to many people. Many believe that mortgage forbearance and foreclosure moratoriums currently in place to protect homeowners impacted by the pandemic are keeping the real estate market afloat. As these policies begin to expire, we may see a minor housing crash as a result if additional legislation isn't put in place. Only time will tell.
A Note on the Rental Market
The American renter population has been one of the groups hit hardest by the pandemic as millions continue to struggle to pay rent. Thankfully, legislation exists to prevent struggling tenants from eviction during this time, but landlords and renters alike are left wondering what the future will hold when moratoriums expire and the economy begins to recover. Some experts predict rent prices will continue to fall and vacancy rates will continue to rise through the rest of 2020 as unemployment and income loss continue to impact the renter population.
The whole world is working through unprecedented times, so predicting the future of any industry is difficult to do. According to realtor.com's Housing Market Recovery Index, the U.S. housing market has returned to January 2020 growth levels, meaning we've recovered from the immediate disruption caused by the COVID-19 pandemic—a start to recession recovery.
We may see many changes in the real estate space moving forward, like short-term or vacation rentals shifting to suit the needs of long-term, remote and corporate tenants. The industry as a whole benefit when policies are put in place to protect mortgages and provide relief for renters. Landlords are facing some of the greatest difficulties during this ongoing storm. While the national real estate market has proven to be a bright spot in an otherwise unpromising economy, the overwhelming challenges the rental industry faces will inevitably impact the industry as a whole, and vice versa.
Currently, it's impossible to predict the future, but the final months of 2020 will help us all further understand the impact of the pandemic on the real estate market and how we expect the market to respond in 2021.