As COVID-19 pandemic continues to affect all spheres of our life, its true impact is yet to be seen in real estate. In case you’re in the market …
As COVID-19 pandemic continues to affect all spheres of our life, its true impact is yet to be seen in real estate. In case you’re in the market for income properties right now, you might be worried about whether the coronavirus pandemic will cause the housing market to collapse.
Will its effect be similar to the 2008 financial crisis?
To help you better prepare for the impending market changes, I have identified five trends in real estate the coronavirus will lead to.
1. Mass Migration from High-Density Areas to Lower-Density Areas Like the Suburbs as People Want to Avoid Crowds and Elevators
Right now, 84% of Americans live in “urban” areas.
Years ago, it became obvious that the rise of suburbs is inevitably going to happen at some point. After the initial pandemic scare passes, this process is expected to speed up. People living in high density, overpriced, and (what some see as) low-quality areas will start migrating to suburban areas.
During this pandemic, more than ever before, people have started thinking that maybe they don’t really want to be living crammed in with so many other people. Now that we have seen what kind of an impact a new virus can bring upon (and keeping in mind that COVID-19 might not be the last virus concern), there are strong indications that this virus concern will stay with us for at least a generation.
This, in turn, could cause mass migration to lower density areas (like the suburbs) as people want to avoid crowds and elevators and reduce the chances of getting infected during a pandemic like this one.
2. Increase in Federal Government Benefit Programs Like Section 8
To minimize the negative economic impact on people, governments started banning evictions so many tenants aren’t required to pay rent. National rent control could be possible and we could see an increase in federal government benefit programs such as the Section 8 program.
One such program is the idea of Universal Basic Income, which would give every citizen money that could be used for rent. You can learn more about it in my interview with Andrew Yang, the Democratic Presidential Candidate, who is a strong proponent of UBI.
Another thing that we have to keep in mind is that there’s no such thing as a temporary government program – if you took away social security, people would riot.
3. Eventual Increase in Inflation Rate Due to Monetary Stimulus and Fiscal Stimulus
In layman terms, inflation means that you could pay back your fixed-rate 30-year mortgage with cheaper dollars in the future. Your mortgage payment is getting smaller while the income from tenant rents will increase over time.
Low interest rates mean that money is ultra-cheap now with the Fed printing a lot more money in response to the COVID-19 crisis.
The monetary and fiscal stimulus announced by the world’s major economies during the pandemic is unprecedented. According to many experts, this policy injection could have an even more dramatic effect than what we saw after the 2008 financial crash and will likely lead to an eventual increase in the inflation rate.
4. Commercial Real Estate will Continue to Decline
The coronavirus pandemic has forced numerous companies to completely change the way they operate, many of which have gone fully remote. This has made them realize that the future of work might be remote after all and, as a consequence, more companies will have employees work from home.
Moreover, companies are starting to realize the benefits of not renting a large expensive office space. This will lead to a decline in commercial real estate and a huge reduction in demand for office space.
Finally, university students will not want to pay $50,000 per year without the in-person college experience – no one will want to pay that amount of money to just log in to a website and take online courses.
5. More People Will Need Space for a Home Office
Now that the world has seen it’s a completely viable mode of operation, remote work will continue to grow. The further rise of remote work will lead to an increase in demand for single-family rentals because people need more space to set up their home office.
Let’s examine a real-life example – two roommates are sharing an apartment. Due to the coronavirus they are both now forced to work from home. Naturally, they need more space for a workspace or home office. As a result, they both decide to get their own apartment.
With more and more people carrying their work home, this could lead to a trend where people need more space as they turn their homes into offices and need better conditions and more privacy to be able to hold meetings and be as productive as in an office environment.
Conclusion
Even though we are yet to find out the true ramifications the coronavirus pandemic will have on the real estate industry, we are already able to predict certain trends the pandemic will lead to. First of all, it will make people change certain habits and create the need for more social distancing, leading to migrations from high to low density areas.
On the government level, it is expected to lead to an increase in federal government benefit programs but also result in an eventual increase in the inflation rate. When it comes to companies and their employees, the growth of remote work will lead to people needing more space (and bigger apartments) for their home offices, which will consequently broaden the decline of commercial real estate.
If you are interested in learning more about real estate investing during coronavirus, check out our free recorded webinar with Jason Hartman and George Gammon at PandemicInvesting.com.
