2020 has undoubtedly been a year for the books. There has been upheaval in every facet of life, from social unrest to dramatically changed work environments. All of this change is having a dramatic impact on 2020 real estate trends.
Real estate has the potential to be an excellent investment, whether you choose to be a landlord, investor, or homeowner. However, you’ll need to be aware of these unusual trends when deciding whether or not to take the leap.
If you’re looking to understand 2020 real estate trends, these are the critical ones affecting the market today.
1. Surging Home Prices
As reported by Realtor.com, median listing prices are now 10.6% higher than a year ago.
Layer on top of that the National Association of Realtors reports sales of existing homes soared 24.7% in July from June, the single largest month-over-month gain in the history of the 52 year survey.
This is the highest sales pace since December 2006, when of course, we were in the infamous U.S. housing bubble of the mid-2000s.
There are a number of factors impacting these surging home prices, but key drivers include low interest rates and supply shortages, as discussed below.
2. Plunging Interest Rates
We are currently experiencing some of the lowest interest rates in U.S. history, with fixed rate mortgages averaging between 2.5 to 3.0%. Earlier this week, a friend of mine locked in a 2.62% interest rate on a 30-year fixed rate mortgage.
The key fact here is that home prices move inversely to mortgage rates.
When interest rates go down, home prices go up. This makes sense, because falling interest rates coax new buyers into the market and fuel buying demand, which drives prices up.
Low interest rates also allow home buyers to finance larger mortgages for the same monthly payment and surging interest in new home purchases can create bidding wars.
The low interest rates are also attracting those looking to tap into the tax benefits of real estate investing. Aside from the standard deduction, homeowners are looking to secure a large enough mortgage (which the current rates enable them to) and itemize their deductions.
3. Severe Supply Shortages
When considering 2020 real estate trends, no one anticipated that the U.S. would experience a dramatic shortage of single family homes.
According to Realtor.com, “In the millennial era of economic expansion (2012-2019), a total of 5.92 million single-family homes have been constructed. Over the same eight year period, 9.76 million new households have been formed.”
Meaning, more households are forming than single family homes are being built, creating a severe supply and demand issue.
As stated by the National Association of Realtors, the supply of existing homes for sale in the U.S. plunged 21.1% annually at the end of July, representing the lowest July supply since this metric began being tracked in 1982.
The low supply of homes for sale is causing buyers to submit increasingly higher offers.
Properties are also coming off the market at breakneck speed, which is increasing the likelihood that buyers will include price escalation clauses or enter a bidding war.
Even before COVID, housing markets were struggling with low inventory. Now the market is even more competitive. If you are thinking of selling, this may be a lucrative time to do so—that is, if you do not have to buy something else immediately.
4. Rising Mortgage Rates (Despite Falling Interest Rates)
Because home prices are surging in many markets nationwide, mortgage rates are now higher than this time last year.
Home mortgages are composed of two payment parts: Principal and interest payments.
Although buyers are paying low interest rates, they are purchasing more expensive homes. This means buyers are financing larger mortgages. This causes the principal portion of one’s mortgage to rise. When principal payments get large enough, the interest portion of the mortgage can also grow, off-setting the low interest rates.
Realtor.com reports that someone who buys the typical listing today will make mortgage payments that are $14 per month higher than someone who purchased a property a year ago.
Over the course of a 30 year fixed rate mortgage, this adds up to an extra $5,040 in expenses: $14/month x 12 months per year x 30 years = $5,040
5. Virtual Tools for Rapid Offer Submission
This 2020 real estate trend has to do with tech. A key factor that may been speeding the rate at which buyers are submitting offers is that there’s been a change in how properties are being viewed.
Most realtors have adopted 3D virtual tours that enable potential buyers to ‘walk through’ a house while minimizing their exposure.
As 2020 wears on, 3D home viewing is expected to continue playing a critical role. Homebuyers will continue relying on 3D home tours to zero in on the few properties they plan to visit in person.
This is speeding up home buyer analysis and target selection, as well as enabling rapid offer submission.
6. Exodus from the Cities
New York City was one of the hardest-hit metropolises in the early days of the coronavirus. Over 30,000 people have died from COVID 19 in this densely packed urban landscape.
Almost immediately, people who had the option began escaping the city. With autumn’s confusion and fear over school reopenings, many are not returning.
Bucolic small towns and beach communities in Hudson Valley, Connecticut, and the Hamptons report masses of families leaving New York City. They’re looking for property in the country, driving up prices in places like upstate New York, which used to be economically depressed. This mass exodus may or may not last, but it has a strong effect on real estate.
If you were prescient enough to snatch up a cottage in Inverness, CA, or Margaretville, NY, you might be able to sell now at far more than you paid for it.
7. Unemployment Volatility
If you are planning on renting out your real estate, consider the impact of the global recession on your consumer base. Depending on the demographics of your region, you may see a great deal of unemployment. That means people will have trouble making the rent.
According to the Bureau of Labor Statistics, the unemployment rate in the U.S. averaged only 5.8% from 1948 until 2020. Prior to the COVID lockdowns in the U.S., our unemployment rate had been resting around 3.6%.
But, in April 2020, it spiked over 400% to an all-time high of 14.70%.
While these figures have gradually been improving, the concerning factors is that many Americans will be coming off unemployment assistance around the end of this year.
Traditionally, unemployment assistance is provided for a maximum of 26 weeks. While these benefits have been extended to up to 39 weeks during COVID (about 9 months), for many this cut-off will be looming soon.
If you’re looking to be a landlord, keep that in mind when you decide how much to charge, how much you can invest, and how much you can afford to lose.
8. Rent Moratoriums
In the wake of the pandemic, the government issued a moratorium so that people who could not work because of COVID-19 could not be evicted. That leaves many landlords scrambling to pay their mortgages and unable to evict tenants so they can rent out their property to paying clientele.
Speaking of mortgages, if you are thinking of investing in real estate now and need a mortgage to do so, understand that it may be more challenging this year. Lenders are more cautious now and need more evidence that you are an acceptable risk.
Keep an eye on your credit rating and improve it by paying down debts. Don’t open any new credit card accounts, but keep the ones you do have open and low. They are proof you are reliable in paying back what you owe.
9. Housing Insecurity
When considering 2020 real estate trends, no one could have predicted a rise in housing insecurity due to a global virus outbreak. That’s the stuff moves are made of.
However, it’s no fiction that COVID-19 left many unemployed with more people filing for unemployment than in the Great Depression.
On March 27th, 2020, the federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES). The act supports homeowners who have suffered lost income due to the pandemic with mortgage relief.
Additionally, the act also affected rental relief for tenants living in apartment buildings that had federally-backed mortgages. It’s expected that homeowners will continue seeking mortgage relief for the rest of 2020.
While the precise impact of these measures is unknown, it may be playing a role in keeping housing inventory low.
10. Home Buyers Want Quarantine Comforts
With COVID lockdown now underway for over six months, families want to control their living environment while the entire family is working and studying from home.
Being cooped up indoors while working from home and social distancing has created a longing for open spaces and natural environments.
This has also escalated the competition for affordably priced homes, as families want to control their living space while occupying it 24/7.
If you buy a fixer-upper, consider whether you can do the work yourself. With so many people adapting their homes to multi-generational dwellings (kids moving back, taking care of elderly parents), contractors are in great demand. If you can’t do your own floors or roof, you may wait months to get to done (cutting into your rental and sales potential if you’re looking to be a landlord).
11. Migration to Working from Home
Another massive change in 2020 was the migration to working from home. The pandemic sent many office workers home, and who knows how long they may stay there? Companies realize that they do not need all of that expensive corporate real estate either.
If you have real estate that you intend to either sell or rent, you need to understand the shifting needs of your potential customers. People need office space and places to escape from their family members.
That means the open plan living area that was so popular a few years ago may now look like a hard place to get stuff done. Consider walling off alcoves or areas that can be working spaces for spouses and kids.
If your place is rural, invest in high-speed wifi so that residents can seamlessly transition to working from home without a glitch.
12. Global Warming
If you have not yet purchased your real estate, many of the events of 2020 may influence your choices more than ever. Locations that once made for beautiful vacation spots may now be more prone to flooding, wildfires, and other after-effects of global warming.
Beach properties throughout the country remain popular, but if you are thinking in the long term, think again. In beach havens like Fire Island, local governments have been reclaiming beachfront property to make way for dunes and other beach erosion prevention plans.
Insurance companies are not only raising rates in some locales, but they’re refusing to insure some coastal properties at all.
If you want to make some fast cash by renting out a party house for a season or two in San Diego or Long Island, it is still a significant investment. But consider the long term risk of properties in dangerous areas if you are looking to own for decades.
13. People Seeking Side Hustle Income from Real Estate
As the interest rates hold steady at lower prices, it means more people are eligible for bigger mortgages. Additionally, more people than ever are out of work and have extra time on their hands.
These two factors have combined in the perfect storm to stimulate people seeking multiple income flows to pursue side hustle money from real estate.
In particular, there has been growing demand for properties that could be used as either a second home or rented out on AirBnB. The reason? People want to create a hybrid-model whereby they can use these homes to get away from the urban living, while simultaneously generating side hustle money for themselves during the recession.
Managing vacation rentals is time consuming, because it is an active income source and not a passive one. It involves frequently visitor communication and there’s cleaning, re-stocking, yard care and repairs required on an ongoing basis.
However, more people than ever are ready to trade their time for money, given the competitive job market right now.
14. Vacation Rentals Recover
While nearly all AirBnB hosts took huge hits as the Coronavirus lockdowns hit the U.S. in March 2020, most AirBnB rentals in vacation destinations have since rebounded.
The reason for this is simple: Families and couples are looking safe vacation getaways where they can enjoy outdoor activities, without having to share central spaces or air ventilation systems with other guests.
In particular, AirBnB properties near beaches, parks, and hiking trails performed well this summer, as outdoor activities have spiked in popularity due to the social distancing requirements. This winter, it will be interesting to see if winter rentals near ski resorts continue this trend.
Among AirBnB hosts who control rentals near popular destinations (like major cities), rental rates have been bolstered by people’s desire to lodge alone, but simultaneously dampened by people’s desire to avoid airline travel altogether.
Finally, many renters are now are now seeking long-term vacation rentals, instead of a weekend getaway. This is because families are fleeing the cities to lean into remove work, commune with nature, and benefit from larger living spaces they may not have available at home.
As a landlord, this can lower unoccupancy rates, and in some cases, drive up your mid-week rental rates.
2020 Real Estate Trends
Between the uncertainty of the upcoming election, the coronavirus, and wide-spread unemployment, lifestyles are changing rapidly. For anyone seeking a lucrative future in real estate, there are opportunities available, so long as you pay close attention to the 2020 real estate trends.
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