What to expect in the post-pandemic housing market
As the summer comes to an end, back-to-school time reminds us of our days getting back to “normal.” Traditionally, this is the time of year where we’re switching from the excitement and spontaneity of summer activities to the welcome routine of school days. But after the last year and a half, what does “normal” even look like now?
The pandemic has caused so much change. For some parents, sending their kids back to school will be the first time they’ve done that since March 2020. And while the seasons will change, some of the lifestyle changes we’ve made in regard to the pandemic will be with us for a while.
Nowhere are these changes more apparent than in our homes. We’ve rearranged our spaces to create room for remote work and school. Many people have moved now that proximity to their office hasn’t been such an important factor. In addition, the pandemic’s effect on the housing market has had an impact on how we finance and value homes, and even how we purchase them.
So, let’s take a look at all of these changes and identify which trends are going to continue into the fall and beyond.
Settling down a topsy-turvy housing market
As you probably know, mortgage rates dropped to historic lows during the pandemic. This encouraged a lot of people to take advantage of the potential savings and start looking for a house to buy. But the buyers rushing into the market ran headlong into a significant barrier: not enough homes for sale. The number of available homes has been low for over two years now.
That’s made for a highly competitive housing market, as there were more potential buyers than homes for sale. And that drove prices up. A lot.
Will the market stay this hot? We have some encouraging news.
Home values keep going up, but at a slower pace
As the economy recovers, rising home values should slow down. This is according to a report written by Daryl Fairweather, Chief Economist at technology-based real estate brokerage Redfin. He expects mortgage rates to float up to 3.5%, which will dampen the demand for homebuying.*
“Double-digit home-value growth will end as the U.S. reaches herd immunity and the economy rebounds. That's because mortgage rates will make buying a home more expensive, and Americans will have more options for how to spend their money,” Fairweather writes. “As a result, home values will rise about 5% per year, which will be more in line with the growth of the overall economy.”
New construction starts to make an impact
As we’ve written about before, one way to fix our historically low housing inventory problem is with new construction. The National Association of Realtors® (NAR) has been calling for the construction of more homes for over a year. But that’s not the only way to increase supply, and a host of factors are coming together to make more homes available.
"The market's outlook… is encouraging," said Lawrence Yun, NAR’s Chief Economist. "Supply is expected to improve, which will give buyers more options and help tamp down record-high asking prices for existing homes."
Yun predicts that we’re going to see more homeowners willing to open up their home to prospective buyers as the pandemic recedes. These sellers will likely be able to cash in on the hot market. “"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 current state of remote work
The question that remains on people’s minds, though, is where to expect people to buy those homes.
Many Americans started returning to the office this summer, but it’s been clear that remote work has proven popular during the pandemic. For employees, it’s allowed them to ditch their commutes and have more time with family and friends at home. For employers, they’ve realized they can find savings in their office rental budget.
Even as more and more of us are heading back into the office, remote work is not going away anytime soon. A report on the future of work by McKinsey noted that “20 to 25 percent of the workforces in advanced economies could work from home between three and five days a week. This represents four to five times more remote work than before the pandemic and could prompt a large change in the geography of work, as individuals and companies shift out of large cities into suburbs and small cities.”
So, you may want to hold off on transforming your work desk back into your dining room table for now. And we’ll probably continue to see home listings that emphasize the fact that they can offer a home office.
And employers are preparing for this becoming the new normal as well. From that same McKinsey report: “Some companies are already planning to shift to flexible workspaces after positive experiences with remote work during the pandemic, a move that will reduce the overall space they need and bring fewer workers into offices each day. A survey of 278 executives by McKinsey in August 2020 found that on average, they planned to reduce office space by 30 percent.”
Of course, not everyone will be given this opportunity, so check with your employer before you plan on moving further away from the office.
Remote working means cooler suburbs
One consequence of the growing trend of remote workers is that downtown areas are losing quite a bit of their foot traffic. This has led to a wave of closures in restaurants and bars in what had been the hottest parts of city centers. But what is bad news for the city center is good news for outlying communities, as that foot traffic will now be in the ‘burbs.
As coronavirus restrictions are lifted, we should expect to see restaurants and bars in areas outside of the central business district thrive. This is according to the same Redfin report by Chief Economist Daryl Fairweather:
“When the pandemic ends, many people will continue working from home at least part-time, but they will begin taking their lunch and coffee breaks outside their home. This means the kinds of businesses that cater to workers will relocate to suburban areas where more of their customers will be during the day… Over time, suburban communities will start to feel like more cities with more new restaurants, coffee shops, and happy hour spots opening.”
This is good news for home values in these suburban areas, since nearby amenities play a role in the value of a home. And it could lead to even more hipsturbias across the country, those smaller cities and towns that have a desirable mix of work/life/play all in one spot.
How our homes have changed
It should come as no surprise that what we look for in our home has changed because how we live in our home has changed over the last 18 months. The open-floor-plan trend has taken a hit as people are struggling to find just a modicum of privacy in a house that suddenly feels too small and cramped.
Here are a few other design trends that have taken off during the pandemic and may be here for a while:
We’ve mentioned this one already, but having a dedicated space for a home office is going to be essential for anyone who plans on working from home even one day a week in the months ahead.
Take advantage of the space
Gone are the guest rooms that go unused unless someone is visiting (who’s allowed visitors in anyway?), the dining rooms just for special occasions (that’s now the virtual classroom) and the old playroom (cleaned out and full of exercise equipment). Even as we start to let more people into our homes and allow ourselves to spend more time in public spaces, we’ve been putting every square inch of home to use this year, and that’s unlikely to change back.
Outdoor living rooms
As we learned how COVID-19 spread, one of the first places we felt safe was outside, where fresh air and ventilation seemed to lessen the risk of transmission. That led more of us to create outdoor spaces to gather, either around a firepit or an outdoor heater, if you could find one. Even outdoor furniture experienced some supply shortages as we rushed to create an outdoor living room to stay social, and socially distanced. And now that we’ve created these outdoor spaces, we’re going to keep using them.
How we buy a home has changed for good
At the beginning of the pandemic, the real estate market practically came to a standstill. Homeowners who were ready to sell all of a sudden weren’t willing to let prospective homebuyers inside to see their homes. And no one wanted to spend hours signing papers at a closing inside a stuffy conference room.
But we figured out how to safely find, buy and finance a home quickly enough by using the latest technology in new and innovative ways. And those changes are here to stay.
Virtual tours have allowed more people to attend a digital open house from anywhere in the country. And they’ve proven to be immensely popular.
A Zillow report has found that in-person open houses decreased in popularity during the pandemic, but listings featuring a 3D tour were up about 200%. These homes are also more likely to grab a potential buyer’s attention, as they’re 75% more likely to be “favorited” on the online platform than listings without the virtual tour.
Close from anywhere
It’s not just the home listings that have gone increasingly online. Even closing the deal is digital now. Guaranteed Rate started offering FlashClose®, a digital tool that allows borrowers to sign most closing documents online, before the pandemic. But it proved to be an essential tool during a time of social distancing.
FlashClose is currently available as a hybrid version†, which allows for most documents to be reviewed and signed remotely, and full eClose‡, which lets customers sign all their documents remotely. Over the last 18 months, “we have seen a dramatic increase, of course, in both FlashClose Hybrid and eClose,” says Whitney Vogt, Director of Strategic Initiatives at Guaranteed Rate. And she only sees more adoption going forward.
“The industry has finally turned a corner in the use and understanding of digital technology at the closing table. Title, notaries and lenders now are more open to the change and see the benefit it brings to their business in terms of productivity and operational efficiency. There’s work to be done, but the long-held views on paper are finally evolving. Signers know the benefits of living in the digital world and expect that experience to transcend into all aspects of daily life, including their mortgage experience.”
The truth is, we’re not going back to what we considered normal before the pandemic—in the housing market or anywhere else. But as we can see from these trends show us, that’s not necessarily a bad thing. We’ve had to transform our lives due to the events of the last 18 months, and many of those changes proved to be a positive.
* Sample rate provided for illustration purposes only and is not intended to provide mortgage or other financial advice specific to the circumstances of any individual and should not be relied upon in that regard. Guaranteed Rate, Inc. cannot predict where rates will be in the future.
† Not eligible for all loan types or investors. Eligible for conforming and jumbo loans as well as primary, 2nd home and investment properties. Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Title company restrictions may apply, not eligible for HFA programs. Contact Guaranteed Rate, Inc. for current rates and for more information.
‡ Not eligible for all loan types, or investors. Conventional loans only. Eligible for primary, 2nd home and investment properties. Title company restrictions may apply, not eligible for HFA programs. Full eClose is not currently eligible in California, Connecticut, Delaware, Georgia, Maine, Massachusetts, Mississippi, New York, North Carolina, Rhode Island, South Carolina, Vermont, and West Virginia.