UPDATE 10.05.2020: On 29 September, The Economist released an episode of their podcast show "Money Talks" called "A plague, but not on houses - why is the global housing market booming?" Starting approximately 5 minutes in, hosts discuss not only the nature of the current post-pandemic suburban housing boom, but also the factors contributing to the relentless upward surge in housing prices. Regular readers of this site will recognize the points made.
Though you may not see the previously contained-to-downtown phenomenon of hipster beards over brewing vats in your suburban neighborhood, there is truly nothing hipper in 2020 than personal space and the safety & security that comes from being able to distance oneself from one’s neighbors. Further, space - which has always been a luxury - is becoming the lead driver in determining the price of homes. A lower price for less space has always been a given, but never more so, and never more significantly, than when that space is in a high-density area during a public health crisis.
If you’ve got a private space outside of your house, be it a yard, deck, porch, etc., you are now living in a prime piece of pandemic real estate. Mixed-use neighborhoods that have restaurants and shops within walking distance have seen substantial increases in pedestrian activity as the work-from-home workforce has been rewarded with the delights of moving about their neighborhoods as pedestrians, chatting with neighbors they’d previously only been able to wave to, and spending their day in comfortable clothes instead of business casual. These neighborhoods continue to increase in value as the permanence of our new reality settles in.
Why the Suburbs?
Suburbs were the original destination of ex-urbanites who wanted a higher quality of life than they were receiving in the city. In Raleigh, the suburbs were the prime focus of development for over 30 years, meaning more people in Raleigh have lived in the suburbs than have ever lived downtown in the history of the city. This makes the majority of people in the city of Raleigh suburban dwellers.
As most of these suburban dwellers will attest to, the suburbs have never really lost their charm; they’re just being discovered anew by those for whom urban living, with all its current restrictions from what came before, no longer offers the same quality of life. How many of these new suburbanites are coming from having settled for less space because they “were just sleeping there”? Now that our homes are where we do just about everything, new calculations determine value.
Though Downtown Raleigh does not have the population density of an LAX, NYC, or ATL, until recently, Raleigh’s density was ever-increasing as constant new construction added units that brought people closer to an increasingly active downtown scene. The rejuvenation of downtown Raleigh, with the removal of warehouses and single-story structures in favor of apartments, condominiums, and entertainment venues which began 20 years ago, has been so successful that gentrification of surrounding neighborhoods was in full force until March.
Now as you drive through Downtown Raleigh, many homes that previously appeared to be wonderful “fix ‘n’ flip” opportunities are now stagnant. Their dilapidated state and high prices spoke to their anticipation of buyers certain yet to come. Though those buyers may return in a time we cannot yet determine, these properties will sit idle, subject to a stuttering market while the suburbs flourish around them.
Certainly some new construction projects are still being completed 6 months after COVID-19, but few of these were not started before COVID-19 changed the world. Builders are savvy; they make what sells. They realize that densely packed living spaces are not the way of the future.
How many are currently having to install walls in open floor plans, be it in homes with whole families trying to work from the same shared space, or removing previously constructed common areas from commercial spaces, as a contactless workspace is now the future?
More downtown areas are going to remain unrenovated and property values will continue to decline in high-density areas, regardless of the city. Urban living spaces previously serving their residents only for a small portion of their days, as the residents enjoyed the multitude of public spaces available, will now have their value reduced to what people value in the pandemic age.
Since no one can say when the pandemic will end, we must consider these current trends as indefinite until proven otherwise. Projecting forward off the trends we’ve experienced over the first six months of the pandemic, we can see that it’s become a hot seller’s market with suburban houses having the highest rates of return, price increases, and successful closings.
One thing is for certain, though; Raleigh is going to make the best of every situation. Perhaps this renaissance of suburbia will lead to a more dynamic and enticing pedestrian-friendly design of malls that can become a High Street or town square-style setting for communities. Certainly, home values will be increased by homeowners putting their discretionary income into their houses in the form of landscaping, decks, pools, and more.
I’ll leave you with this question: can anyone tell me when the suburbs are going to be less enticing than they are right now?
As a de facto cultural capital of the East Coast, many journalists, talking heads, and aspiring futurists like myself have been keeping a close eye on how New York City is faring following its early role as a major COVID-19 hotspot. With its dense and diverse population, those of us looking in from the outside can use it as a data mine to inform our predictions for how other major American cities will fare in the short- and long-term futures.
According to the articles published in the Wall Street Journal’s “Mansion” section dated Friday, August 21st 2020, the pandemic “slams into the luxury market and creates one of the toughest business environments in decades.” The article then goes on to describe the appalling price cuts (some as high as 46%) experienced by homeowners attempting to sell their luxury townhomes and condos here in the fifth month of the COVID-19 panic. Author Katherine Clark presses home the point that these market constrictions are coming “at a rate that surpasses both the 2008 financial crisis and the period immediately following the 9/11 terrorist attacks.”
With statistics like a 56% drop in Manhattan home sales from 23 March and 16 August 2020, it’s not too risky to say that all models as we know them are broken. Even though we’ve been living in an age of pandemics as early as when HIV/AIDS became prevalent in the 80’s, this is the first time in the memory of anyone alive right now that we have faced a highly contagious respiratory virus that has the potential to infect and kill anyone on the planet, regardless of their economic class, religion, sexual orientation, etc. Predictive models that we’ve been relying on for decades were summarily incinerated the moment COVID-19 became an unchecked pandemic in America.
Naturally, humans are trying to fill the vacuum left behind by our newfound inability to predict the future as reliably as we’d like. Watching a large city like NYC is a great starting point, so it begs the question: when will Raleigh, NC follow New York City’s lead? When will we begin to see substantial drops in home buying? When will we begin to feel the effects of de-urbanization as residents flee from the high-risk city centre to a safer, more spaced out suburban neighborhood?
We Already Have
While luxury properties are traditionally not something worth tracking since NYC, especially Manhattan, is so expensive compared to what the average person will encounter, in this case they’re worth watching as an indicator of what’s to come. Something I’ve learned from having a family member in the upper echelons of a Fortune 100 company is that the more money you have, the more access to inside information you are afforded. Those at the top of the food chain were able to move sooner than the rest of us and it’s been trickling down ever since. The uber-wealthy in Manhattan have been trying to sell their downtown properties with little success, so it’s reasonable to expect those in areas with less astronomical prices to feel the same defeats.
Based on information in the Triangle Multiple Listing Service (TMLS), the service which records all real estate transactions in Wake County and surrounding areas, Downtown Raleigh homeowners have already missed the mark. In the 7 months prior to 12 March 2020 (a date often cited as the start of NC’s lockdowns,) the most expensive property sold in MLS area 001, which contains most of downtown Raleigh, closed at $770,000. In the 5 months since 12 March 2020, the most expensive property sold in the same MLS area sold for $360,000. And this isn’t for lack of trying; the total number of properties sold in this pre-COVID period was 521. The total number sold in this post-COVID period to date was 1,469. Allow me to reiterate: in 5 months, the total number of properties closed tripled while the median sale price was cut in half ($431,250 down to $278,500).
People are bolting. Homeowners are cutting their losses and getting out of these congested areas while they still can. The average number of days on the market before closing is just about the same - 8 days on average pre-COVID and 7 days on average post - but the range of price you can demand for what was previously a prime piece of downtown Raleigh real estate has significantly lowered.
What Does It All Mean?
In short, this means that if you’ve been reading along with me since the start, you’re not surprised by this. Just as I’ve gone back and updated every article each time a rich person with teams of analysts speaks into a microphone and confirms something I wrote about (on average) 6-8 weeks sooner, I’m updating all of you with this empirical data from my own little team of TMS algorithm analysts confirming that yes, COVID-19 has changed the real estate world forever.
As you can see in the data above, homes aren’t sitting on the market for very long. As prices fall, we can expect to see this continue. One of the very first topics I wrote about was the power of the local investor to poise themselves to be prepared and ready to act when the time was right to start buying up local property, an activity which would subsequently stimulate the local market as homeowners are able to move to their next property. As downtown prices are falling, local investors are becoming more and more hungry to snatch up each property as it comes available in anticipation for the inevitable economic recovery following COVID-19, supporting a low number of days on market before going under contract.
On 15 August, Zillow CEO Rich Barton came out and said the same thing your humble real estate professional has been saying since March: the coronavirus pandemic has initiated a permanent paradigm shift in the way Americans live and work. The real estate industry has responded to the pandemic just like every other industry, and, like others, its response is permanent. From air shafts in architectural designs mitigating spread of disease to suburban and ex-urban developments becoming more popular, every pandemic sends people away from cities. Not to say that this makes country life as accessible or enviable for all who would want to leave cities - perhaps it's just moving to an area with a lower cost of living & higher quality of life (closer to a favorite activity or family) - catastrophes always accelerate technological advances. Telecommuting is here to stay.
Don't fault major corporations for their market-sensitive positions in saying "We'll get back to normal real soon!" I watched my own company say to my face "Don't worry, the offices will open to the public soon enough, just be patient" while simultaneously sacking the receptionist. Corporations can be forgiven just like politicians for saying what people want to hear in order to avoid panic. But the savvy buyer is now following the wealthy buyer. A client living in the Upper West Side of Manhattan reported this week that even the most dilapidated barn in the suburban/rural areas of Northern Connecticut are being bought up like hot cakes while downtown brownstones are sitting vacant on the market for indefinite periods of time as buyers continue to balk at the idea of living in a congested area.
For those who are unable to buy a home until they sell their current home, which sits in the city centre, prices have dropped substantially to 1/3 of asking prices on penthouses in downtown areas. This lack of liquidity will increase the rental market in desirable mixed-use, pedestrian-friendly areas like North Raleigh. Perhaps even all those storage units built over the last decade might finally be filled by people moving in rather than holding on. While downtown apartments are, understandably, difficult to sell, a 40% drop in listings for suburban homes is starting to show the efficacy of a family having a family home to call their own. It is now the base of everything.
Unemployment insurance boosts under the federal CARES Act are over. Recipients saw their final federally-backed unemployment payment drop last week and knew it would likely be their last for a painful while. Even if you’re receiving state unemployment insurance, there’s no guarantee your payments going forward will be anywhere near the federal $600. With so many American homeowners using these CARES Act checks to cover their housing payments, what’s going to happen next?
They're Calling It a Mortgage Crisis
They’re right. Over 4 million homeowners missed their housing payment in May 2020, according to data & analytics firm Black Knight. This is reportedly the biggest drop on record since 2011. Whether or not we will match or surpass the pain felt during and after the Great Recession of 2007-2009 is yet to be seen. With a sudden vacuum in many people’s pockets, these statistics are going to become even more dire in the coming months.
Not only will the depletion of the CARES Act severely hurt those now in danger of missing their housing payments, but consumer spending overall will decrease as average household income decreases. As much as Americans are eager for life to return to some semblance of pre-coronavirus normal, it’s becoming more and more inescapable that we won’t be there for quite some time. Consumer spending, the backbone of the American economy, will take a nosedive as consumer’s spending power does the same. Without some kind of meaningful and substantial intervention and assistance from the federal government, economists’ predictions of a minimum 30% constriction during the third quarter of 2020 seems more and more likely to come to pass.
Whether or not you’re one of these millions of people worrying about how they’ll pay for a roof over their heads next month, you will eventually be impacted by this drastic shift. Without hope of a new stimulus bill allowing for sufficient unemployment benefits as COVID-19 continues to burn through the country, the economic life raft we were thrown via the CARES Act will disappear. When it vanishes, America’s economy will suffer as less and less money is put through it each day. As the economy suffers and constricts, even those with money to spend will see businesses they used to patron begin to struggle. When people can’t afford their houses, how likely is it they’ll be eager to buy things like new clothes, dinner out at a restaurant, or other non-essential items?
Unemployment benefits and stimulus checks are a hot-button topic both in Congress and at dinner tables across the country. Families who aren’t worried about losing their housing discuss how mass eviction and homelessness will affect their neighborhoods; will they see more “vagrant” types wandering the streets, or will their day-to-day lives not be affected in that way? Will petty crime go up as desperation grows? My neighborhood has seen a significant increase in car break-ins in the last couple of weeks even before the CARES Act boost ran out. Now that it is completely evaporated, we know we need to continue locking our cars at night.
Families who are worried about losing their housing are having even more complex and emotional discussions. The kids are going back to school online soon, but without the house, there won’t be any Internet for them to connect to, a desk for them to sit at, or regular meals to fuel their bodies and minds. Parents still have to go to work, but without the apartment, how can they make regular Zoom meetings without it being obvious they’ve been evicted?
America has been divided into two new classes of people since COVID-19 shut us down: those who are paid to remain at home (either working from home or collecting unemployment) and those who are paid only if they venture out to the office, the store, etc. to collect a paycheck. This division, another atop a society already ripping apart at other seams, is only going to increase when housing becomes a luxury and not a guarantee.
This imminent splitting of society is inevitable, regardless of if you “believe in” the science of pandemics or not. Millions of Americans are unable to work and earn at the level they were prior to COVID-19 entering the country. Their loss of income is reaching critical mass as they are unable to make housing payments. Mass eviction following nonpayment will further disenfranchise those already at the disadvantage of limited spending power in a country who thrives on spending.
Fannie Mae and Freddie Mac are the most commonly known, nearly personified, entities of the federal mortgage market. They will purchase your mortgage off the lender whose office you went to (or, more likely, the lender with whom you corresponded via phone, email, and Zoom) for your loan, thus enabling your lender to continue to offer more loans, which are then again sold on to Fannie or Freddie, and so on and so forth.
These two government entities only see profit when mortgages are paid back in full with interest. They love folks who don’t pay off their balances early; they are loath to lose even a dollar of interest on the initial loan balance. They are equally loath to initiate foreclosure on a property. Foreclosures can, but are not guaranteed to, result in a short sale, where the price paid for the property by its new owner does not match the remaining debt owed on the house. If a home was mortgaged for $150,000 but only sells for $125,000 after foreclosure, Fannie Mae is shorted $25,000 on their initial investment. This does not make Fannie Mae happy.
Let’s zoom back in to the millions of Americans about to lose their housing due to inability to pay. Landlords for apartment buildings and rental homes will potentially be saddled with carrying two mortgages as their tenants become unable to pay, and the secondary mortgage market (Fannie & Freddie) will be saddled with carrying the unpaid debt of, potentially, millions of loans. They’ll take a significant loss, the depths of which is yet unknown as income and consumer spending continues to plummet across the country. Without some kind of federal deus ex machina to swoop in and save (ideally) consumers or (more likely) Fannie & Freddie, the outlook is grim for everyone involved.
I take no pleasure in writing thousands of words about doom and gloom and how millions of people are screwed and it’s going to get a lot worse before it gets better. However, our new and inescapable reality is that we have further to go down into the depths of an economic depression before we begin to recover. Everyday Americans are going to be facing eviction now that federal unemployment benefits have expired. Despite this compelling incentive to go back to work, and even despite some of these folks continuing to work in a reduced capacity, there is about to be a housing crisis on top of an economic depression on top of a global pandemic.
Batten down whatever hatches you have left. Prepare as best you can for the impending economic and social fallout. Stay healthy.
UPDATE 08.08.2020: On 6 August, the BBC posted "This is what coronavirus will do to our offices and homes." The article makes staggering predictions of how home and work will look for those who lived in large cities when COVID-19 shut the world down. Follow Laila in 2025 and see how her adaptive workspaces, home office, and living quarters have changed in the 5 years since coronavirus spread into a global pandemic. Their analysis closeley parallels mine in the following post, originally written 06.27.2020.
Throughout history, all societies have adapted to, or been overcome by, disease. In the late 19th century, the United States followed the European modelling for “clean air” spaces, air shafts in buildings, high windows, doors with plenty of ventilation, and more. Lovers of this fin de siecle architecture have to look no further than disease for the reason why Venetian sewers and Swiss sanitariums like Davos are the way they are; common wisdom while tuberculosis ravaged the developed world required a way to “clear the air” of contagion (hence the idiom) to allow patients to recover. How, in this new age of pandemic, will architecture again evolve?
Now is the time to speak with architects and designers regarding pandemic design. If you’re uncomfortable with strangers in your home to take measurements, there are companies offering 3D interior modelling, scans for which are created by workers in full PPE. Most in-demand are the professionals who work along and don’t employ large crews/groups that would have multiple points of exposure to COVID-19, and understandably so.
Contact with strangers increases your possibility of infection, hence why big box stores like Lowe’s and Home Depot are packed to the gills on weekends. Homeowners have taken to DIY-ing many improvements to their home. Many are finding that the open floor plan we all yearned for is impractical for multiple persons occupying the same space, just as an open office concept became the bane of the cubicle warrior. Some are only the battery on their noise-canceling headphones away from filicide. Without discretionary spending now going towards travel, vacations, gas, car insurance, etc., for most, the home renovation and remodeling market is hotter than ever. No one has gone through lockdown without cleaning out every closet and calculating the best plan, affordable or not, for their family to coexist.
It’s not uncommon to find more than a dozen 2x4’s at Lowe’s or Home Depot these days. What are people building with all this lumber? Fencing. Planter beds. Boxes. Catios. They’re screening in their porches. French doors are going in. They’re finally getting around to all of the things that are easy to ignore when we’re only at home to sleep. Now that work, school, and play time all take place at the house, homeowners are making the most out of their properties.
A New Generation of Builders
As COVID-19 continues to blaze through the United States, we will come to rely on our architecture to provide us with levels of defense against biological forces. New construction which confines people into disease-spreading conditions cannot be done ethically. For the discerning (read: wealthy) homeowner, it’s not too far off (and has certainly been accelerated by this year’s events) that the same companies utilizing the Internet Of Everything will utilize that same level of internal home monitoring for preventative measures like temperature checks using thermal imaging. Think Star Trek’s ship scanners. If Amazon’s delivery drone project catches on, then it’s not so strange to think that, instead of a Victorian-era coal chute on every house facing streets for delivery, there could be a “drone dropbox.” How many people use their chimneys anyway now that we’re experiencing climate change? Christmas 2016 in North Carolina was 81* at 9am. Bezos needs the chimney more than Santa.
While more futuristic than the architecture of Davos Sanitarium, far-UVC light and other nonintrusive sanitizing technologies are going to be the future of construction in the developed world. Ask yourself: would you prefer to continue wiping and spraying everything you own with disinfectant every time you get back to the house, or would you rather stand in a Cleanse Portal for a few minutes and let science do the work for you? A Cleanse Portal at every point of entrance or egress from every building in the developed world will be a massive step towards evolving the way we occupy space in the age of viral pandemics.
What Does This Mean for Me?
If the Cleanse Portal raises the hair on the back of your neck the same way Netflix original Black Mirror does, you’re not alone. Continuing automation and reliance on “smart” technology has been, and always will be, a constant point of contention between people; just look at 2004’s film I, Robot. Sixteen years later, we’re still collectively unsure how we feel about turning over more and more aspects of daily life to automation. Some people are thrilled at the prospect of menial chores being done by mindless automatons, while others see “smart technology” as a danger to personal liberty and privacy.
However, in the face of these advances becoming the difference between American COVID-19 cases continuing their embarrassingly colossal upswing or our finally controlling its spread, we will need to reach a compromise between our self-preservative instincts and the need for progress to contain this deadly virus. Reliance on these advanced medical technologies and integrating them into buildings, both commercial and residential, is the way forward.
Evolutions in architecture and building standards are inevitable. It may be a few years or a few decades, but in this inescapable age of pandemics, we are going to continue to progress towards pandemic-quashing building standards and options. Centuries ago, that looked like high windows and better circulation. Now, it looks like drone drop-off chimneys and sanitizing lights. It’s not what I pictured either.
As long as humans have been living packed in close to one another, we’ve had to deal with the spread of illness. Evolving technologies and infrastructure have progressed the developed world to a point where we no longer worry about severe contagious diseases outside of the seasonal flu, or perhaps pneumonia or strep throat in a particularly nasty season. However, months into the COVID-19 pandemic, we are being forced to reckon with the notion that our current systems are not sufficient for a bug like COVID-19.
When TB blazed through the developed world, we adapted by changing the way we built our cities and infrastructure. As COVID-19 continues its unmitigated path through America, we will continue to adapt in ways that will permit us to live comfortably in a new normal. Whether our future is Cleanse Portals or some insofar undiscovered breakthrough, we must acknowledge a certain inevitable truth: we must rely on these advances and adaptive technologies. If we don’t begin working anti-COVID-19 technologies and designs into buildings, schools, offices, homes, etc., Americans will find ourselves constantly defeated by this virus. The age of pandemics has cemented this into human history with remarkable security. Necessity is the mother of invention. I, for one, look forward to meeting her offspring.
Jessica Mohr is a licensed real estate broker working in her hometown of Raleigh, North Carolina.