Future of Real Estate in the US after the Pandemic.

Real Estate has always been a fascinating investment topic to be debated by the pandits. Is the time "NOW" or "NEVER" to invest in real estate after so many obstacles have shaken our faiths in it.

Well, the United States of America's real estate market doest think so. In fact, the market appears to be steady and ever raising. 

A study by CoreInsights has shown that the market for real estate has increased in the top 10 states namely California, Hawaii, Washington, Colorado, Utah, Nevada, Oregon, Idaho, Massachusetts & Arizona. To give an example, in Nevada, house prices have more than doubled since 2010 (105.84%), while in Connecticut, the average price has increased by just 1.12% over the same period. 

So then, if house prices continue to increase at this rate over the next ten years, how would the average house price look across the nation? 

Then when we look at how 2030 prices could look in America’s 50 most populated cities, it’s not a surprise to see that six of the top ten most expensive cities are located in California. In fact, prices in two cities, San Francisco and San Jose are actually projected to reach an average of more than $2 million if they continue to increase in value at the same rate. Prices in six other cities could rise above $1 million - Oakland, Seattle, Los Angeles, San Diego, Boston, and Long Beach.

According to a quote by Mr Yun, NAR's chief economist the real estate market rise is looking positive despite the pandemic.

he said "We’ll see more inventory come to the market later this year as further COVID-19 vaccinations are administered and potential home sellers become more comfortable listing and showing their homes. The falling number of homeowners in mortgage forbearance will also bring about more inventory.”

Yun may be expecting growing sales in the next 6 months, but that limited number of houses will be sold at record prices. Home prices rose strongly last month as NAR reported the median existing-home sold price for all housing types in April rose 19.1% year over year to $341,600.  Home prices reached a record high and this makes it 110 straight months of year-over-year gains.

However, the nation is struggling with its delinquency rate The nation’s overall delinquency rate was 5.7% in February. The foreclosure rate remained at a 22-year low.

Looking at the percentage of Mortgages we can clearly understand the pressure of a slow economy on real estate owners.

Lets us not forget that Natural Disasters have largely impacted the economy too.

While climate change will likely land on the radars of more buyers and sellers in the near term, in the medium term it will almost certainly make homeownership more expensive by driving up insurance rates in flood zones. “You’re going to see that,” Larson, the engineer and policy advisor, said. “There’s no question about it.”

Larson also explained that even after lawmakers pass reforms to the NFIP there “will be winners and there will be losers” as some property owners are forced to grapple with rising costs.

Further down the road, Larson expects to see greater attention on mitigation, which he said offers six to one cost benefits over insuring and then bailing out flooded homeowners. He additionally floated the idea of adding a modest transaction fee to every real estate deal in the U.S., then using the proceeds to pay for climate and flooding management. There are political obstacles to these solutions, but long term they make sense, he added.

Larson also expects the financial industry to push back against housing in climate change-affected areas over the next decade — which could cut off buyers’ abilities to get mortgages.

“You’re already seeing companies like Moody’s saying they’re not going to invest in real estate in high-risk areas anymore,” he explained.

Flooding is only one part of the climate change equation, of course, but homeowners affected by other disasters such as wildfires have also already begun to see their insurance cost skyrocketed. Over the next decade, that trend is likely to continue — potentially pricing people out of areas they might otherwise have lived in.

In other words, while the policy specifics are still to be determined, it’s clear that climate change is going to drive up the cost of homeownership over the next decade.

“A lot of people in some of those districts are going to get hammered pretty bad,” Larson concluded.

With everything said we did a deep dive into the historical data and formed a trend to understand the market for the next 10 years.

House prices in the US have risen by 48.55% in the last ten years (from $173k to $257k) and if they continue to grow at this rate for another decade, the average US home will be worth $382k by 2030.

But across such a vast country, the picture inevitably varies. The outbreak of COVID-19 has had an unbelievable impact on all areas of our lives and the economy at large, but how to have house prices changed since the pandemic started?

And, on the whole, we can reveal that house prices have continued on their pre-pandemic upward trajectory, rising by 2.80% from $250k in March, to $257k in September.

More than ever before, people are spending a significant amount of time in their homes, and this has given them the time to think about what they really want from their space.

For some, this means that renovations and remodelling are currently in the pipeline on their current property. but For others, it means finding their forever home and making it just right; whatever that takes.

Of course, there’s another factor to consider here, and that’s the strong shift in attitudes toward the workplace and remote working. Many are now realizing that they don’t need to live so near to their workplace and are moving out to the suburbs.

And it’s this renewed interest in our homes, due to the pandemic, which has kept prices on the up. 

In Florida, property prices have risen by 6.61% in the months since the President declared a national emergency. Arizona, Idaho, and Utah have all seen increases of more than 5%.

On the other hand, Alaska is the only state where house prices have dropped over the last six months, seeing a decline of 3.28%.

*To show the effect of COVID-19 on house prices, we looked at how prices had changed between March 2020 (when the pandemic was declared a national emergency) and September 2020. Average house prices were sourced from Zillow. To estimate property prices in 2030, we took the average price in each state and the 50 most populated cities in the US for the present day (September 2020) and ten years ago (September 2010). We then calculated the rate of change in values between the two dates and applied this rate of change to the average price in September 2020 to estimate how they might look in 2030, assuming that they continue on that same trajectory.

Interestingly, the few cities to see a drop in prices following the pandemic was amongst the biggest in the country, with San Francisco seeing prices drop by 2.08% since March, while prices also stalled in New York City, rising by just 0.92% between March and September.

Again, this could be a by-product of the fact that millions of Americans are now working from home as a result of the coronavirus pandemic, leading many to leave behind their apartments in the cities and move to the suburbs.

Other cities that saw house prices stall include Detroit, Washington, D.C. and New Orleans, which again are highly populated cities.

However, it seems that COVID has had a limited effect on many other housing markets, such as in San Jose, where prices continued to rise at a rate of 6.75% in the last six months, followed by Phoenix, Arizona (6.25%), Memphis, Tennessee (6.09%) and Mesa, Arizona (6.05%).

So, If the trend continues we are more likely gonna see the prices rise as high as $382,000 on an average for the US. Again the major thing to keep in mind before investing is that it highly depends on the city and the state you are planning to invest in.

It's going to be interesting to see how much of these trends will change or remain the same.

Hope you find it useful and informative. Follow my blog for more Data related quests.

Until next time. 

-DATA DEVIL
Honey Saini

*Source - Corelogic.com, Zillow.com, Inman.com, Cbre.com, Washingtonpost.com, Economicshelp.com, Gordcollins.com, Homebuyinginstitute.com, Blog.grana.com

Real Estate, US, Housing, Investment, Finance, Data Science