Many have feared a repeat of the 2008 housing crisis this year as the economy shut down. So far, however, signs indicate that the overall market is holding up well.
We’re still seeing strong home sales, particularly on lower-end homes. After a dip in March, April home sales came in at numbers near February’s high, even as many feared that potential buyers would stay home.
Sure, average prices are down about 8%, but we were coming off a strong market. And that decline is far less than the stock market dropped. Demand appears robust as lower interest rates have spurred more refinancing from homeowners, even as temporary mortgage forbearances soar.
But the real estate market isn’t like the stock market–it’s not built around fast trades and trends can start that take years to play out.
That’s why a crisis is likely to unfold that could prove devastating in dense urban markets such as New York, Miami, and the Bay Area.
How? With the rise in work-from-home arrangements.
While many of these arrangements have been temporary, several companies have already decided to permanently shift their workforce towards some level of remote work.
Many Wall Street banks are working on a way to rotate employees in and out of offices permanently. Facebook announced that half its workforce would be remote within ten years. Twitter became one of the first companies to announce that all their workers could take advantage of such arrangements.
The long-term implications are enormous. It will likely lead to a shift away from cities and towards suburbs over the next few years, benefiting some markets at the expense of others.
While some companies like Facebook have announced pay cuts for those leaving high-cost areas, the savings and quality of life changes could be well worth it.
For instance, the median listing price for a home in San Francisco is a staggering $1.3 million. The rent for a one-bedroom can run around $3,700 per month. That makes New York City, with a median home price of $760,000, look cheap by comparison.
The Bay Area in particular is notorious for its high prices, resulting in a housing crisis there. There’s strong demand from Silicon Valley tech companies, as well as local authorities reluctant to create more housing units. Both factors curtail supply.
The situation has been so bad that last year that Google pledged $1 billion to address the issue. The recent cultural shift in remote working may do more than dollars ever could.
The supply and demand imbalance could be corrected with thousands of tech workers telecommuting from remote areas. The median U.S. home price is far more reasonable at just $226,000. And rents for a one-bedroom run closer to $750-$900 per month on average.
Even with a sizable pay cut, many tech employees will find that reduced housing costs will more than makeup for the drop in income.
While there’s a sigh of relief at better-than-expected home sales, a housing crisis is brewing. The stage has been set for a decline in high-flying, overpriced, and population-dense real estate markets.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.
Last modified: May 31, 2020 2:45 PM UTC