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We have gone past the phase where working from home was a Covid-19 forced anomaly to one that looks like it will be a permanent part of our business work style and culture.
Large businesses are adapting to this work-at-home style and redesigning their office complexes to accommodate staff who must be on the premises. So office desks are now at least 6-feet apart. No more open spaces where people sit side by side to work. They are also creating dedicated areas for larger meetings and video conferencing rooms that will accommodate social distancing.
The work from home trend is having a dramatic impact on the way we work, eat, learn and even recreate. And the idea of working from home on a more permanent or semi-permanent basis is having a significant impact on the real estate market and future home designs.
The biggest impact we are seeing from our research on this subject comes from when people look to buy pre-existing homes. In the past, the number of bedrooms was on the priorities list. While bedrooms still matter, buyers now are looking at homes with an extra bedroom or an area that can be turned into a home office.
For example, if a person or family is looking to buy a two-bedroom home, they are now looking for a three-bedroom home and want to designate that third bedroom as a home office space.
They want to have a home with a dedicated room or area that they can work in and have room for privacy, a noiseless environment that is big enough to have room for larger monitors, stand-alone printers and optimized as a Zoom room.
While the home office is now a larger priority, it needs to be functional, not just attractive. These rooms might also need to be multifunctional as learning-from-home continues to be apart of school interaction for kids. And as a sign for our times, there is also interest in designing an area for package deliveries and drop-off that is more secure.
Interest in buying a second home is higher, too. The idea that a person can work from anywhere suggests that while they may not want to move to Hawaii or the Bahamas for work, they do want to move to areas with great scenery and open spaces. In homes with barns, sheds and garages, many seek to convert them into dedicated offices or play areas for their children. These areas could also serve as spaces for kids who are forced to learn from home and parents want them to do it in a better environment than utilizing their small bedrooms.
An interesting tech twist is related to reimagining the home theater. When we moved from analog to digital TV and HD, many homes created what is known as home theaters. Some were very elaborate, and in very high-end homes, they were large dedicated rooms with Barca lounger seats and wall-sized screens. Now, many of these larger home theaters and even smaller ones are being converted into dedicated Zoom rooms and optimized for video conferencing. Productivity now trumps home theater entertainment.
People are re-imagining their lives in a post-pandemic world where so much has changed. They realize the future seems to point to both work and learn-at-home being with us well into the future. This has changed the dynamics of the home real estate market and is now determining what types of homes sell or what new designs will be imagined and built.
It is abnormally hot for fall as mortgage rates break records. The coronavirus pandemic has remade what’s normal, and homebuying is no exception. Typically, the real estate market tends to hit the brakes in the fall, as kids return to school and families juggle work, extracurriculars and the upcoming holidays.
But that’s not what’s happening as we head into the second week of September, closing in on the official start of fall: Sept. 22. Homes are getting snapped up faster as home values rise and mortgage rates continue to slide.
“Home sales are currently stronger than they were pre-pandemic and show no signs of slowing,” says Cheryl Young, senior economist at Zillow. “Demand is being fueled by low mortgage rates. We’re also seeing deferred home buying as the economy and housing market pressed pause in the spring.”
The median listing price on single-family homes grew for the 17th straight week, jumping 10.8% year-over-year, which is the most rapid growth in over two years. Meanwhile, mortgage rates have broken new records. The average rate on the 30-year fixed-rate mortgage is now at 2.86%, and the 15-year hit 2.37% this week—both all-time lows, according to Freddie Mac’s recent Primary Mortgage Market Survey.
As the number of homes for sale continues to shrink, new listings are being snapped up quickly. They’re lasting 12 fewer days on the market than they were 12 months ago, according to Realtor.com’s latest housing trends report.
“With unusually high buyer interest this late in the homebuying season, buyers are moving much faster than this time last year to beat out competition and lock in low mortgage rates. This means homes are sitting on the market for much less time, despite notably higher price tags,” the report’s author, Realtor.com economist Danielle Hale, wrote.
Whether this buying trend will continue is up in the air as supply is lagging behind demand, which appears to be the only real obstacle. What’s holding homebuying back now are chronically low levels of inventory, Johnson says, and stiff competition for homes that do come onto the market.
New listings dropped 12% during the week ending on Sept. 5, which spells trouble if construction doesn’t pick up. This is especially harmful for first-time buyers who are competing against a slew of bids for the same listing.
“Multiple offers are quite common for starter homes,” says Lawrence Yun, chief economist at the National Association of Realtors (NAR).
Why Is Homebuying Taking Off Now?
Experts can’t point to one reason why homebuying has defied expectations as we face a still uncertain economy and elevated levels of unemployment. Certainly, the Federal Reserve and GSEs, Fannie Mae and Freddie Mac, helped keep the market liquid so lenders could continue to do business as well as contain mortgage rates. But why is there such a big appetite for real estate now?
Low mortgage rates? People fleeing cities? The need for more space as working from home and remote learning become realities? Dormant buyers who were waiting for the pandemic to subside? It’s likely a combination of a few or all of these factors.
“Homebuying is currently on a tear, but much of this is likely due to the fact that those looking to buy during the spring homebuying season had to wait as the pandemic took hold,” Young says.
One influence that is undeniable in the recent buying spree is the rise of the ultra-low mortgage rate, says Yun of NAR. Buyers who were held back from buying during the spring watched mortgage rates drop. Now that businesses are opening up and more people are finding ways to live with the coronavirus safely, the homebuying hesitancy has subsided. Low rates are just adding extra impetus to what was already a motivated buying segment.
“Low rates are the key reason for the robust homebuying, despite the still-high unemployment rate,” Yun says. “Those with secure employment are taking advantage of the low interest rates.”
The circumstances surrounding the pandemic have created homebuyers, as well, says Bill Cosgrove, president and CEO of Union Home Mortgage. People are using their kitchens for office space and spare bedrooms for classrooms, so many of them are looking to upsize. Not only do they want more square footage, but they want to get away from urban cores so they can also have outdoor space.
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A new report by youth marketing experts YPulse titled “No Place Like Home” provides significant new insights on how the Covid pandemic has changed how Gen-Z and Millennials view the homes. The following statement summarizes key findings: “As young people look to their spaces as mental health retreats, at-home items and services that comfort, declutter, or foster a feeling of escape that from the outside world will resonate.” The opportunities for marketers are clear and will be elaborated on below.
YPulse previously observed that millennials have homebody tendencies, with a majority preferring to go to a café or watch Netfix at home as opposed to going to a party on a Saturday night. A recent survey confirms that this sentiment was present even prior to the pandemic, with, “…67% of 19-37 year olds telling YPulse in January this year that they would rather stay in on the weekends than go out.”
Both Millennials and Gen-Z (widely regarded as the most stressed out generation in history) are seeing the home as a refuge from the outside world, as many have felt stressed by issues such as climate change, the 2008 recession, student debt, and now Covid-19.
Shifts in How Young People Use Their Homes Will Create Opportunity
With a strong majority of Millennials and Gen-Z having the goal of owning a home, how they use that home will be of interest to markets in many product categories. YPulse points out several Covid-related shifts in emphasis among the younger consumers in terms of how they will use space, including heightened demand for:
- Fully equipped home offices (seating, lighting, desks, temperature control), with many indicating a preference to work at home even after the pandemic.
- Home fitness space and equipment, with 63% indicating that when the pandemic ends they would prefer to exercise at him.
- Private outdoor space, with many preferring having their own private space even after Covid passes as opposed to using public parks for this purpose
- Cooking supplies and well-equipped kitchens. While the demand for eating out does not appear to have done away, there has been an uptick in the number reporting that cooking is a hobby.
- Play space for children; this has been spurred by many dealing with home schooling while trying to keep them busy via fun and productive entertainment.
Renewed Emphasis on Comfort, Simpler Design, and Home Improvement
YPulse reports that Covid has led to 80% of young people self-quarantining and, 83% reporting that their home has provided them with comfort during the pandemic. In addition, 71% actually indicate that they actually enjoy being able to spend additional time at home. This “shelter from the storm” as YPulse puts it, brings comfort to young consumers, who describe their ideal home as being comfortable, cozy, safe, calming, and quiet. Accompanying these feelings is a desire for simplified décor that is calming and reflects a less cluttered environment. The report also suggests that “Cozy, homier ads are more relevant than ever to young consumers,” advice that would appear very sound going forward.
The “comfort” element of the home is making young consumers more likely to indicate they want to engage in do-it-yourself home improvements. The report indicates that 64% of young consumers say they are more interested in-home improvement than before Covid. DIY may be especially important in the short-term, as these young consumers look to make improvements while limiting expenditures, and may become a longer-term trend as well.
A Shift from Urban to Suburban and Rural Living
The report observes that while about 3 million Millennials have moved back with their parents during the pandemic, a majority live on their own. Prior to the pandemic, 34% of Millennials and 8% of Gen-Z consumers owned their own homes, with and additional 46% of Millennials and 9% of Gen-Z being renters. Clearly, it is a goal of both of these generations to own their own home in the future, with 85% of young people reporting that they plan to eventually buy a house.
Once the pandemic ends, this desire to should produce good times for the housing market. Assuming a reasonably healthy economy and no dramatic changes in federal tax code, it remains likely that once the crisis passes that there will a boom in Millennial wealth, leading to an even better housing market.
Ypulse’s report indicates that 48% of those ages 19-37 who rent or live with parents are putting off home ownership because of Covid. So where will they live? A notable trend that is that more urban Millennials are considering or planning a move to a suburban or rural area. YPulse’s data shows that the top reasons for this sentiment are lower housing costs, low crime rates, being close to friends, being able to afford a larger home, and having more outdoor space. Unless the significant violent crime increases taking place in many major cities can be held in check via policy changes, it would appear that this trend could be exacerbated as real estate experts are already reporting exodus from many major cities as a result of increased crime and high tax rates. As YPulse’ report states, “Moving out of cities is also becoming a dream as some plan for a new future.” If more work remains remote post-Covid, this may become a very realistic dream for many young people.
For example, As the pandemic devastated New York City in March, schoolteacher Ali Iberraken and her young family rushed to relocate outside the city—way outside the city. They left their two-bedroom Brooklyn brownstone for an Airbnb in the woods of Virginia’s Shenandoah Valley. The Iberrakens had planned to decamp for three weeks but ended up staying for two months, not least because they loved the peace and beauty of the bucolic environment.
“Virginia made me realize that’s exactly the lifestyle I wanted,” Iberraken said. “We tried to stay as long as we could, and upon coming back to New York, it was such a big difference. Now we’re going back to the same old playground in 90-degree heat and horrible humidity.”
She’s not the only one pining for a rural escape during the COVID-19 crisis. A spate of recent headlines such as “Coronavirus may prompt migration out of American cities” and “Americans flee cities for the suburbs” suggest a major demographic shift is underway—a shift that could have profound consequences for housing prices and the broader real estate market.
Are you looking for the right home for you and your family or want to list your house now? The market changes so fast even in times like this. We’ve got the right guidance for you! Talk To Tammy, 636.931.9100