Pandemic changing how Americans buy and sell homes
The coronavirus pandemic is roiling the real estate market.
Home sales are down. Job losses have soared. Lenders have tightened mortgage requirements.
That's the immediate fallout. This health scare and economic shock might also leave a lasting mark on how Americans buy and sell homes.
The longer the crisis drags on, the more the coronavirus could transform development patterns and buyers' preferences. Here are several ways the pandemic's legacy could live on even after the public health threat ebbs:
• Your next home might be in the 'burbs, not downtown.
Urban living made a major comeback in recent years. In New York, San Francisco and Seattle, home prices soared and job creation surged. Sprawling Sun Belt cities such as Austin, Houston, Los Angeles, Miami, and Phoenix saw construction of new high-rise apartments and condos in once-neglected downtowns.
However, with COVID-19 claiming a huge toll in urban areas like New York City, density might lose some of its appeal.
"This crisis is the right moment for the world to reconsider the conventional wisdom that denser cities are better cities," writes Joel Kotkin, a scholar specializing in urban issues at Chapman University in California.
For city dwellers cooped up in tiny apartments for weeks on end, suburban sprawl suddenly seems a viable alternative.
"People who live in the city might be looking to move back to suburbia," says Alan Rosenbaum, chief executive of GuardHill Financial, a mortgage company based in Manhattan.
New York City has a population density of nearly 28,000 people per square mile, according to the U.S. Census Bureau, making it the nation's most crowded city. In the pre-pandemic boom, New York's teeming masses were a selling point. Now, that demographic reality has pivoted from an asset to a liability.
"If you're in a downtown high-rise, it's hard to socially distance on the elevator, where somebody might cough or sneeze," says housing economist Brad Hunter, managing director at RCLCO Real Estate Advisors. "On the other hand, in the suburbs, you can pull into your driveway and go straight into your house, and it's easier to socially distance."
A move toward telecommuting would play into that trend. If workers keep toiling from home, as they've been doing during the pandemic, rather than commuting to downtown offices, living in the suburbs makes more sense.
• You might be renting for a while.
With paychecks shrinking and lenders making it harder to qualify for mortgages, more Americans might find home ownership has drifted out of reach.
A weak economy tends to lower home ownership rates as potential buyers opt to rent rather than take on the hefty financial commitment that accompanies buying a house.
"We're likely to see wage declines, so the purchasing power of consumers is going to be reduced," says Robert Dietz, chief economist at the National Association of Home Builders.
• You might start shopping for a second home.
For those who have the financial means, owning a second home suddenly looks more appealing. With New York City locked down, wealthy New Yorkers fled to their beach homes in the Hamptons, their cabins in the Poconos or their condos in Florida.
Owning a second home isn't a cheap option. Mortgage rates on second homes typically cost more, and you'll have to shoulder additional property taxes, homeowners insurance and maintenance costs.
In general, Dietz says, demand for second homes is strongly correlated to the stock market's performance — an indicator that doesn't portend a flurry of buyers for second homes. However, the coronavirus crisis could override the usual forces driving the market for second homes.
• You're going to rely more on tech in the home buying process.
In recent years, real estate transactions gradually grew more virtual. The coronavirus accelerates the trend.
Even so, a real estate transaction is the ultimate hands-on experience. Before they commit, buyers want to sniff out cat pee, listen for traffic noise and generally immerse themselves in the sights, smells and sounds of their potential new home.
Meanwhile, buyers and sellers typically receive reams of paperwork — state disclosure forms, contracts, mortgage documents. And the process ends at a closing table surrounded by a mountain of paperwork from various participants.
The coronavirus has disrupted business as usual. In-person tours have all but halted.
While no one expects virtual tours to replace physical walk-throughs, the paper-heavy transaction process had been poised for an overhaul. In recent years, many real estate brokers and mortgage companies had moved toward a more virtual process.
Now, industry experts say, remote transactions, electronic signatures and virtual closings are poised to take off.
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