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Recessions are typically not good times for real estate owners. We are in the worst recession since the great depression. Yet residential real estate prices in many parts of the country are rising, not falling.
Usually, as the economy shrinks, so do jobs, paychecks, and buyers’ ability to purchase real estate. Demand falls. People struggle to pay their rent and mortgages. Real estate prices contract, snowballing the financial pressure on owners and lenders as foreclosures rise. Typically, if you were in the market for a new home, your best bet would be to wait a while for house prices to reach a bottom, which typically comes a year after the economy slips into a recession.
The combination of the pandemic and technology means this is not a typical recession real estate market. Some real estate markets in many urban areas are understandably suffering; rental prices for apartments in many cities are falling. Yet residential real estate prices in many interior and more rural areas of the country are actually rising.
An increasing number of urban coastal dwellers who used to pay little attention to “flyover country” are now making those interior and rural parts of the US their destination. If you can work remotely, you can live almost anywhere—such as a rural area like Rapid City, South Dakota.
My brother, David Kahler, a realtor with Keller Williams Realty Black Hills, confirms that he has seen a significant increase in people moving to Rapid City from urban areas. The increased demand is driving real estate prices higher.
The biggest reason for this anomaly, according to an August 13, 2020, Axios article by Jennifer A. Kingson, “The pandemic real estate market,” is a belief that “our lives and lifestyles have been permanently changed by coronavirus . . .”. Many people are concluding that their home is going to be the place they work and play for the foreseeable future. These Americans are wanting more space, both indoors and outside.
More space is not easy to find or afford in major metropolitan areas. That increases the appeal of more rural areas, where real estate prices can be 25% to 75% lower than in pricier urban areas.
According to Axios, relocating buyers tend to be those who can work from home. They are looking for houses with home offices, back yards, home gyms, and space to homeschool children. Areas that are near outdoor recreational areas like beaches, lakes, forests, and bike paths are in high demand.
Also, being close to retail stores, airports, and entertainment doesn’t have the high appeal it once did. Online shopping has seen an increase while travel and attending large entertainment events have largely dried up. While things may eventually return to near-normal when a vaccine or effective drug is found for the virus, many people believe it will take years for that to happen.
The National Association of Realtors reported that home sales for June were up 20.7% and for July were up 24.7%. While sales are down over a year ago in almost all price ranges, prices have continued to rise throughout the pandemic. This reflects a shrinking supply of available housing in most parts of the country. Prices are up 3.8% nationwide from June 2019 to May 2020, according to the S&P/Case-Shiller U.S. National Home Price Index.
For people whose jobs allow them to work remotely, the definition of “practical housing” is changing. An online commute opens up many more possibilities to combine urban careers with suburban or rural lifestyles. One consequence of the coronavirus pandemic might be the transformation of “flyover country” into “work from home country.”
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