No doubt, coronavirus (COVID-19) has changed our views about everything. We can now work from home and be as efficient as we were in office; it is safer to stay at home than going to social gatherings; suburbs and rural areas seem safer than the congested cities. This has caused so many people to consider moving to less crowded areas. A survey of 2,050 adults by Harris Poll shows that 39% of city dwellers are now considering moving to less congested areas. This raises a few different questions among real estate investors: How will the shift in population affect the industry? What is the effect of population shift in both urban, suburb, and rural areas? Where is the next big thing happening?
Effect on the Housing Market
The effect of the predicted population shift should not be underestimated—both on the economy and the real estate sector. For example, in a report from the New York times, Mayor de Blasio of New York City said that the economic lockdown has cost the city to lose up to $10 billion in revenue. This shows that if proper care is not taken all aspects of the economy will be significantly hurt by the end of this crisis. If what the analysis projected becomes true, it means that the housing market could take a hit post-COVID-19 in urban areas.
As the unemployment rate increases, displaced workers may find it difficult to catch up with payment of their mortgages or their monthly rents. Although the government has forbidden eviction till after the pandemic and homeowners can apply for mortgage forbearance, this is still a huge issue we will have to face. If the unemployment rate continues to rise, most homeowners and rentals will probably fall short of their payment which could lead to a lot of foreclosure and eviction in the coming months.
Second, several months of quarantine can lead to a lot of businesses shutting down. According to a marketwatch survey, 43% of small business owners could close permanently if they don’t get financialaid. Small businesses could find it difficult to reopen their doors after the long break because of capital. Shutting down means there could be an increase in the vacancy rate as these businesses are unable to renew their leases. Its effect would be felt by investors who depend on ROI from their property to pay the mortgage and could make them fall short in payment which could lead to foreclosure.
Third, the increase in the relocation of people to suburbs and rural environment could cause an increased vacancy rate and property listing after the pandemic. This would lead to a buyers’ market causing a reduction in the price of property and rentals in cities. On the other hand, when more people move to suburbs and rural areas, there could be a low inventory than the demand at the time leading to a sellers’ market and thereby raising the price of properties.
Effect on Fix-and-Fix Investors
The emigration of people out of cities (like Chicago, New York, Los Angeles, etc.) could lead to a low demand in residential properties in those cities. An increase in the number of homes listed due to relocation to rural areas would result in a significant drop in the demand for property. This would, however, result in buyers’ market as the number of homes listed is more than buyers’ demand. However, due to low competition, there could be a significant drop in the prices of properties leading to a tight flip margin.
On the other hand, the suburban/rural investors could likely see a boost in sales because of the relocation of people to these locations for safety, increasing the number of home buyers. As a result of the population shift and the high demand for properties, which is likely caused by low inventory, property prices could be pushed up, increasing the flip margin and creating more revenue for investors in suburbanareas.
Third, for those who still prefer to stay in the city because of their love for city living, they could need to find ways to reduce their expenses because of the economy. This means that they would be required to downsize in other ways to meet up with the economy. So, there could be an increase in the demand for low budget single family properties.