The Covid 19 pandemic is having a lasting impact on real estate for many years to come. During past pandemics there were rapidly changing advances in public health, patient care, and quality of housing. In the past, some cities were destroyed by the pandemic but today, with the advances in technology and possibility to work from home, cities are much less important for day-to-day businesses, so cities didn’t get destroyed but changed considerably.
Despite the enormous suffering brought by this pandemic, The Covid 19 break gave all of us a taste of what it would feel like not to commute for many hours while juggling our demanding careers, supporting our families AND trying to carve some fun time for ourselves. That shift in mentality is impacting real estate big time. So, the list of hottest housing markets might look completely different in 2027 than it is today.
There continues to be a lot of confusion and uncertainty about the economy and housing market. Since the pandemic is not done yet, economists all agree on one thing - the uncertainty of what will happen in the future.
Usually economists make their predictions based on past performance, but when something humongous like a pandemic happens, the forecasting models don’t work any more. There is a lot of guesswork and let’s-wait-and-see-what-happens even from major institutions who set monetary policies.
The mortgage rates went up drastically and the affordability has gone down considerably in the second half of 2022. If the interest rates remain high there is a prediction that home prices will fall by 5.3% in 2023. There are no signs of major price reductions nationally because of 3 reasons: low inventory, high-quality mortgages and no severe recession/financial crisis. There is a lot of buzz about a major recession happening in 2023 but again, because of the 3 reasons above, it doesn’t look like it is going to be a recession of 2008 magnitude.
As we started 2023, the inflation seemed to respond to the change and mortgage rates have stopped climbing up and even came down somewhat, but there is still so much uncertainty in the future because of Covid (which is not gone yet), Political situation of Russia-Ukraine war and how China’s reopening will impact the inflation etc.
It is possible that we will see home prices fall another 5% in 2024 (so 10% potentially from the end of 2022). But if interest rates fall faster than predicted, that will mean the home prices will stay the same through 2024. Or will go a little higher if the incomes rise faster than inflation, so buyers will have more purchasing power and with lower interest rates, we will have another great year for home buying in 2024. If that happens from 2025-27 the home prices will most likely start to climb up 1-2% above that peak of mid-2022.
The Housing Shortage
Right now we have a major housing shortage and housing analysts are saying that local zoning laws no longer work. Like in much of Europe, in the US, the single-family homes will be replaced by multi-family buildings in the densest urban centers. The zoning laws will have to change. That way essential workers can work close to work sites like hospitals, retails stores and food establishments.
Here are some trends that will likely occur in the next 5 years.
In recent years, the number of homes that are part of the Homeowners Association has climbed up. In 2021 78% of new Single Family homes for sale in the US were part of HOA, up from 64% 10 years ago. The reason is in a fast growing city, outsourcing the development of sewer, roads and parks to a private company funded by the HOA fees makes it easier for the city.
This trend might make the Single Family homes without the HOA to be valued higher.
The trends in real estate to watch for are
Impact of climate change on real estate - the natural events will impact the increased insurance and building costs.
Maintenance costs, insurance premiums, HOA fees, property taxes will become more important then before along with purchase price and mortgage rates.
Purchasing a property with friends or family will become more common, multiple income sources to purchase homes with others will help avoid uncertainty of housing costs as renters
We still have pent up demand for housing and it will take some time for the builders to create much-needed supply. The National Association of Builders expects that demand to be supplied by 2025-2030. Of course, that’s very location specific. And, if the population doesn’t grow as fast as predicted, the supply will be satisfied earlier.
While students have returned to classrooms, the workers are still experimenting with a partially work- from-home model. The offices are still at half capacity compared to pre-pandemic levels.
What does that mean? According to Stanford University research the biggest cities in the US experienced a doughnut effect during the pandemic. The cities with their traditional economic activity in the center of the city experienced a hollowing out of their residents and the people migrated to the outskirts of the city for more square footage and for outdoor space. Will this change be permanent? It depends on how the city governments will react to this, will they create more affordable housing in the urban centers and transform office spaces to housing to create more affordable homes?
New types of homes will be emerging like 3D printing, using more factory-built elements, manufactured homes etc.
All these predictions assume that the recession will be mild, will start and stop in 2023, that inflation will be in control by 2024, mortgage rates will go down and the home affordability will again go up. But there might be several major events which can change those predictions.
If China opens to the world after being closed for 3 years that will create higher inflation because of higher demand, especially energy demand. The inflation will force the mortgage rates to go up again and so less housing demand, which will force the sellers to lower their prices.
Europe is facing a much steeper decline in home prices right now.
House prices in Australia, New Zealand, Canada, Denmark, Norway and Finland are going down, with Sweden leading the way.
Since the prices went up drastically during the pandemic fueled by very low mortgage rates, prices dropping like this can be called a correction not a crisis.
What about Massachusetts?
Real Estate is very local. The biggest decline in prices will be seen in the markets that saw a crazy price growth during the 2020-2022 period, and a lot of new construction (crazy appreciation happened in Austin, Phoenix and Boise).
I feel that Boston and the surrounding suburbs will not see a major price drop.
Mortgage applications have increased since the new year started according to Yahoo Finance. There are two reasons - the mortgage rates went down slightly and the prices have softened somewhat. Mortgage Bankers Association noted that mortgage applications increased 27.9 percent from one week earlier, for the week ending January 13, 2023.
So, we expect the Spring Market will be busy yet again.
Boston boasts one of the most complex real estate scenes in the nation. The Boston’s market is fast-paced and can be competitive, but it can be simple to navigate with the right professional fighting in your corner. Noune Karapetian has been a resident of Boston's close suburb, Belmont for over 30 years and, as a result, knows the ins and outs of the nearby communities, localized transactional details to be aware of, and the people themselves, making her an invaluable resource for her clients. Contact Nouné Karapetian today for a few more of her top trusted tips to make your next move a serene and simple experience. Watch my video about the 5 year predictions https://youtu.be/xopBqlhyQO8
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