Miriam Moore is the President of Default Services at ServiceLink, a provider of transaction services to the mortgage and finance industries.
If the U.S. housing market were a human, it would be familiar with experiencing a rollercoaster of emotions. Over the past several decades, there have been significant ups and devastating downs. It’s an industry that ebbs and flows depending on a host of market dynamics. The 2008 financial collapse was tough, but one thing the housing market has never had to navigate before is a worldwide pandemic. Despite the coronavirus’s negative impact, the housing market generally rode a wave of positivity through the balance of 2020, fueled by strong demand and historically low interest rates.
One thing the Covid-19 outbreak and subsequent quarantine period has done is reinforce the value of the home. The additional time most families are spending together has caused Americans to take a much-needed inventory of things that matter most. The result of this introspection is sparking a new set of demands that are reshaping the housing market. As outlined in PwC and Urban Land Institute’s “Emerging Trends in Real Estate” report, prospective homeowners’ general requirements are rising in terms of finding a fully functioning home that accounts for space to live, work and play.
Shiny And New
When weeks of quarantine and social distancing turned into multiple months, the weight of the situation caused many to re-evaluate their living conditions and think more long-term. Large numbers turned to the internet to view properties that could more appropriately accommodate their family’s needs, which became more glaring with every week spent in isolation.
New construction has had a sort of magnetic effect on select buyers looking to trade their cramped quarters. A brand new home comes with many alluring features, one of which is the fact that no one has ever lived there before. It’s quite literally a breath of fresh air. This interest in newly constructed homes is sparking a new set of baseline requirements that builders must take into account.
For example, not only do today’s buyers in this sector want more square footage per floor plan, they also want additional flex space, indoor/outdoor space, a larger backyard, air purification systems and data connectivity. With a brand new house, buyers not only want these amenities, they expect them. After all, new construction comes with a healthy price tag, one that 60% of all U.S. households cannot afford.
Even with limited inventory and a smaller subset of qualified buyers, new construction purchases surged nearly 19% in 2020, the biggest increase since before the financial meltdown. For this trend to continue, I believe builders that are adaptable and committed to being nimble and responsive to buyers’ needs will continue to be rewarded. Of course, this all is contingent upon the rebuilding of our economy and key market drivers.
Key Features And Phrases
Sellers of existing homes are also taking advantage of some trends that have developed as a result of the pandemic. Considering inventory is low, it’s a seller’s market. Sellers are in a position of power, especially those whose homes offer two key features that buyers have identified as a new necessity.
One of the most sought-after features throughout the pandemic has been a dedicated office space. With many households shifting to working and learning from home, homeowners are placing a high value on being able to retreat to a quiet space. Not surprisingly, properties being marketed with the phrases “home office” or “home workspace” have spiked by nearly 17% in one analysis and garnered additional attention on the market.
Additionally, buyers are also looking for an upgrade on outdoor space in their new home. Families who have been stuck inside for months now want that escape, even if it’s in the form of a larger backyard. Competition for homes with these features has been fierce, as evidenced by the dramatic increase in multiple offer scenarios. I foresee these particular desires to remain at the top of the list, even post-pandemic.
Single-family rental (SFR) is also a market that has been impacted by the virus. With more families moving out of the city and into suburbia, demand for rental properties reached record highs in the second and third quarters of 2020. More specifically, renters have been searching for detached homes where they can get more space for the money.
So far in 2021, investors are seeing strong rental returns, particularly in the Midwest markets (registration required). In fact, the top 50 SFR rental returns are located in this section of the country, followed by the South and Northeast.
There are many factors that will determine whether these trends will continue throughout 2021 or if they were simply a knee-jerk reaction to an unforeseen event. Rising interest rates, housing affordability, the availability of the Covid-19 vaccine and other variables will likely set off another shift in the market. While homeowners’ evolving demands are likely here to stay, the rest remains to be seen.