The residential real estate market has been a bright spot during the pandemic-driven economic downturn that began early last year. There were initial fears that we might see a repeat of the real estate meltdown that started in 2008, when millions of homes entered foreclosure and homes lost an average of 30 percent of their market value. But so far, housing has performed better than expected.
[callout]A number of key urban centers that were affected the most by the pandemic—New York City tops that list—suffered dramatic downturns in sales, and Manhattan prices were pushed back to 2010 levels. According to The New York Times, 420,000 people left New York City between March and May of 2020 (an amount equal to the city’s population increase from 1950 to 2019).[/callout]
According to the National Association of Realtors (NAR), in 88 percent of metro areas tracked, single-family, existing home prices rose by double-digits year-over-year in the fourth quarter of 2020, with an average price increase of 14.9 percent for the year. This signaled the strongest buying activity for existing homes since the peak year of the last real estate boom in 2006.
Real estate market success is being driven by several factors:
- Historic low mortgage interest rates—in many parts of the country, mortgage interest is lower than three percent.
- A severe shortage of homes for sale, with many sales delayed due to the pandemic, and with many retiring boomers deciding to age in place (toward the end of 2020, there were 22 percent fewer homes for sale than a year earlier.
- Millennials, the next generation of home buyers are beginning to establish households.
- Increased demand for homes by people leaving urban areas, where the pandemic impact has been devastating, in search of safer, more affordable, more stress-free living in suburban or rural areas and in smaller towns, and as work from home (WFH) has become a reality.
New Wave Cities See Potential for Growth
Emerging migration patterns spurred by industry relocations have become a trend in and of themselves. Nationwide, there has been a huge shift in the attraction of geographic centers as magnets for certain industries. For example, the financial center is shifting from New York to New Jersey and Miami (Goldman Sachs is reviewing a Miami relocation). The entertainment center is shifting from Los Angeles, with music headed for Nashville and filmmaking to Atlanta. And the tech center is shifting from Seattle and California to Texas (Tesla has discussed a possible move to Texas, joining Hewlett Packard Enterprise and Oracle). This will create new local economic opportunities and will also have a major impact nationwide.
As populations shift, these new wave cities will grow rapidly, attracting major business headquarter relocations, creating new regional physical infrastructure projects (new roadways and air transportation hubs), possibly even influencing political redistricting and shifting voter power. Increasing tax revenues could provide funding for progressive, innovative projects. These cities could become models for the future of America, setting the pace for other cities to follow.
Cities losing population will have to develop new strategies to stay competitive, not to mention develop new economic incentives to attract companies to keep cities vibrant and economically stable. Unfortunately, this population shift will put pressure on local housing markets in these New Wave cities, inevitably driving up prices.
10 Top Trends for Today’s Home Buyers
Here is a list of 10 things home buyers are looking for right now and into the future. Many of these features were already growing in importance—the pandemic simply accelerated emerging trends.
- At the top of the list is a dedicated Home Office. As working from home (WFH) becomes ubiquitous—many large firms, especially tech, finance and sales firms, say they may never return to having as many large numbers of staff working in central offices again. In some cases, when the husband and wife both work, buyers are looking for two home offices. Trying to conduct business from the dining table is not a long-term solution.
- Space has become a sought-after commodity: freestanding homes in the suburbs, away from crowded city neighborhoods; green spaces of yards and parks; and more space inside the home. The National Association of Home Builders (NAHB) reports that buyers are beginning to look for larger homes and “requests for homes with four or more bedrooms and three or more bathrooms, rose by 46 percent and 33 percent, respectively, in the past year.” No doubt, this trend is being driven in part by an economy that forces multi-generational and/or multi-family living in some households.
- Outdoor living and entertaining areas, essentially outdoor living rooms, are in demand, with ground-level patios being more desirable than elevated decks. Sheltered, paved areas that accommodate outdoor furniture for socializing and dining (allowing social distancing), and that are equipped with cooking and refrigeration equipment, lighting, and fire pits, are deal sweeteners.
- For the past decade, impressive, Up-to-Date Kitchens have been the key to acing home sales, and today, kitchens are more important than ever. With more families cooking at home, kitchens must be large, attractive, functional and easy to keep clean (look for all-white kitchens to decline in popularity). Kitchens should also provide space for socializing and entertaining. That is why oversized islands have become so popular; today, one in three islands exceeds seven feet in length.
- Storage is a problem for the majority of today’s homes. Finding storage space for extra pandemic or weather emergency supplies, jumbo packages of toilet paper and crates of canned food, is a challenge. These items take up lots of space and can quickly clutter up living areas. More home buyers are requesting a large walk-in kitchen pantries. Sometimes these large pantries include wine cellars, built-in shelving, special root vegetable storage, extra refrigerators, and more.
- Private Areas are becoming more important, since so many families are at home every day. Home buyers are beginning to question whether open-plan layouts, which have dominated for the past two decades, are the best choice. WFH often demands some privacy, kids need a quiet zone for schooling, and parents need some “me” or “us” time. Multi-generational and multi-family households have an even bigger challenge. Builders are working to develop new floorplans that provide some privacy, while still providing an open feeling, not an easy task. Multi-purpose spaces, flexibility, even modular walls than can be moved around as needed, may offer solutions.
- Pets Grooming Areas, mainly for dogs, have become a priority for pet owners. Pets provide comfort during times of stress., with the number of pets adopted in the first three months of the pandemic increasing by 30 percent, and with 11 million new pets added by the end of 2020. The number of households with multiple pets has also increased. Today, pets are members of the family, and many families think pets deserve their own room—a small area, usually near a rear entry, where dogs can be bathed in their own shower, with a grooming table and storage for pet food and supplies.
- Hygiene in a healthy, sanitary home environment is on the shopping list for some home buyers. Smooth surfaces that are easy to clean, new antimicrobial building materials, and even built-in blue-light UV fixtures that destroy germs, are making an appearance. Brass and copper materials, known to have antimicrobial characteristics, are gaining in popularity, as are hands-free fixtures for kitchens and bathrooms. Carpeting, that easily becomes germ laden, is being replaced by hard-surface flooring, usually wood or laminate.
- Home as Refuge has never been more important. A spa bathroom with a soaking tub and walk-in rain shower, a quiet zone for meditation or yoga, an exercise area, play space (for games/activities/hobbies/movie watching), and even a garden, can all contribute to supporting emotional health and well-being. This trend is also seen in the color palettes coming into homes today, with more soothing tones that are warmer and organic. Cool blue-grays (which can be depressing when it is gray and overcast outside), which have dominated for more than a decade, are being replaced by warmer grays with a beige undertone and greiges. Benjamin Moore says that use of gray in home interiors has been reduced from 80 percent to around 40 percent. After so much gray, consumers are ready for come color. Some decorator-descriptive “Colors of the Year” for 2021, from a range of companies, include: Aegean Teal, Rosy Peach, Potters Clay, Canyon Dusk, and Soft Candlelight. Dusky dark tones, led by Naval Blue, Spruce Green, and Off-Black or Charcoal, as well as Sherwin-Williams’ top color for 2021, new neutral Urbane Bronze, offer drama and sophistication.
- Delivery Shelters to receive the number of home deliveries is soaring and builders are beginning to address better physical means of accepting, storing, and securing the many packages from Amazon, the grocery store, and even food deliveries. Entry vestibules are making a return and sheltered, protected areas including porches, can be fitted with storage boxes, some even with refrigeration units.
Of course, these 10 features are more relevant to high-end or custom-built homes as they can add thousands of dollars to the purchase price of a home. For example, the cost for a 6’ by 8’ walk-in pantry for the kitchen can start at around $10,000. Still, trends in home styles tend to start in expensive homes and then become adapted for mass-production homes.
Home Retailers Box Scores
During the pandemic, people spent more time at home and focused on creating an attractive, comfortable, safe environment. Home-bound customers fixed things up, pumping up Lowe’s year 2020 revenue by 24.2 percent, while Home Depot saw an increase of close to 20 percent. Many consumers—those who could afford to do so—moved into new homes, which always need some new furnishings.
- Online sales of home goods shot up by 89 percent, according to Salesforce, while total sales for all home goods increased by 220 percent (Bolt Commerce).
- The outdoor furniture category outpaced other home categories, increasing by a spectacular 428 percent (Criteo).
- Sales of office chairs increased by 104 percent and office desk sales increased by 89 percent (Stackline).
- Home electronics, kitchen appliances, furniture, and decorative home, boosted sales at Best Buy, Williams-Sonoma, Wayfair and others.
- Wayfair’s revenue for the year grew by 55 percent to $14.1 billion, with a profit of $185 million, compared to a net-loss the prior year. In February, the company announced that it was laying off 550 employees and closing its one freestanding brick-and-mortar store in Natick, MA. The company described the move as a \”repositioning effort to take advantage of the opportunity ahead,\” and, “to increase efficiencies while aligning teams with initiatives that drive the greatest impact on our customers.\” The move is largely seen as cautionary.
- An explosive rise in the cost of lumber—the price is up by more than 170 percent in the past 10 months—may curtail some new home building in the near term.
Building a Home Base
During the pandemic, many families re-examined their life experiences at home and found that the home base was critical to well-being, family bonding and leading a happy life. This led to a boom in spending on home improvements and embellishments. Now that economic conditions are improving, and when social distancing rules can be relaxed, customers are expected to increase spending on travel, entertainment, and dining out, while likely cutting back on some home expenditures. But if the trends driving home-buying continue, according to Pew Research Center, “About a fifth of U.S. adults moved due to Covid-19 or know someone who did.” For many, the home will remain a priority for some time to come.
Author’s Note: This article focuses on the U.S. residential real estate market and cites nationwide statistics. A number of key urban centers that were affected the most by the pandemic—New York City tops that list—suffered dramatic downturns in sales, and Manhattan prices were pushed back to 2010 levels. According to The New York Times, 420,000 people left New York City between March and May of 2020 (an amount equal to the city’s population increase from 1950 to 2019). At the end of 2020, 16,000 residential apartment units sat empty, vacated by residents leaving the city. Many residents moved to near-by areas: the Hamptons, Long Island, Brooklyn, Connecticut, New Jersey, as well as to Florida and other states. Most experts see markets in Manhattan and other urban centers as already on their way to recovery.