To say that the Covid-19 pandemic has flipped any aspect of business and life is an understatement. This has undoubtedly been the most influential global and nationwide phenomenon in recent decades. And with all major events—whether positive or negative—I like to look at the aftermath and draw conclusions. This enables me to be better prepared for the next time a sizable event hits.
While the pandemic is not officially over and the WHO is hesitant to forecast when it might be able to announce its end, I think it’s safe to say that things have mostly returned to normal in regards to conducting business and obtaining access to travel. Now that it’s been two and a half years since the initial shock of the pandemic, it’s a good time to take a look back and see what we could learn from all of this. In this article, I take stock of my personal experiences in real estate and share the four lessons that the pandemic taught us about this market.
The Real Estate Market Is More Resilient Than People Think.
As soon as the global pandemic was announced, many real estate experts who have spent years or even decades in the industry automatically assumed the worst. In the first months of 2020, you would hear frequent talks about another repetition of the Great Recession of 2007-2009—when national property prices took a steep dip of 33% over the course of a few short months.
However, these fears did not materialize. In fact, the exact opposite happened. Growth in US residential property values accelerated, and the median home price has gone up 42% since January 2020.
The big difference between the Great Recession and the pandemic is that the latter was a global phenomenon that started as a health crisis, while the former developed as a consequence of structural problems in the housing market. Prior to the pandemic, experts had already learned important lessons from the Great Recession. Therefore, inflated property prices and careless lending requirements were no longer an issue.
Recent real estate trends show that the residential market has already recovered from the initial shock of the pandemic in 2022, and things are expected to return to normality in 2023. Home value growth is expected to be back to 2-3%, and 30-year fixed mortgage rates are anticipated to average 4.5% next year.
The US real estate market’s ability to bounce back from the initial impact of the pandemic so quickly demonstrates its resilience to exogenous shocks. Indeed, the pandemic marked some of the best times for investors. They faced minimal competition from homebuyers while gaining access to alternative financing resources, such as hard money lenders and private money loans.
Location Is Everything in Real Estate.
Location location location… While this phrase may sound like a worn-out cliche in real estate, the Covid-19 pandemic reinforced that this is the single most important factor in the market.
While we can definitely talk about nationwide real estate trends that resulted from the Coronavirus, local market trends were even more dynamic than national ones. In regards to homeownership and long-term rentals, major cities saw huge declines in demand and overall activity. A switch from primary to secondary and tertiary markets occurred, as employees had the option to choose where to reside amid growing remote work trends, higher risks of infection in large cities, and generally prohibitive prices in major metro areas.
Therefore, home prices and rental rates increased significantly faster in suburban areas and small towns than in large cities during the pandemic. In other words, US housing markets’ experiences were highly localized. This once again highlights the key role that location plays in the industry.Now, these trends are expected to be largely reversed. As many as 90% of companies expect employees to return to the office for at least some time each week, which means that individuals and families will need to move back to the major cities where these jobs are. Home values are already going down fast in pandemic boomtowns such as Boise, Denver, Salt Lake City, and Takoma due to the quick decrease in demand from homebuyers.
So the second lesson from the pandemic is to never underestimate the significance of location in real estate—even when dealing with global events.
Investors and Other Real Estate Professionals Have to Show Agility and Perseverance.
Just like any other global, regional, national, or local phenomenon, the pandemic is something that will pass. We can conclude that the real estate market has already largely recovered, and going back to normal will be finalized within the coming year.
However, this is not to say that agents, brokers, property managers, and investors in some markets did not experience major shocks and challenges—at least in the first few months of Covid-19. Still, they demonstrated an admirable degree of resilience, perseverance, and agility.
For instance, adopting virtual property tours and expanding digital marketing strategies were tactics that agents developed to stay in business amid the obstacles. Meanwhile, investors chose to rely even more heavily on various proptech products when buying and managing investment properties.
Whether you are an entrepreneur, agent, investor, or anyone else with stakes in the real estate industry, it’s crucial to adopt agility as your core principle to effectively respond to changing conditions and prosper in new environments.
Portfolio Diversification Is Key to Weather Any Storm.
As discussed above, housing markets reacted in different ways to the pandemic. The same holds true for varying segments of real estate, such as residential and commercial markets or long-term and short-term rental properties.
For example, the demand for residential real estate remained strong as people will always need a place to live. Meanwhile, commercial properties for rent and sale saw an initial dip since many businesses switched to working from home. Similarly, long-term rentals were in demand, while vacation rentals witnessed major declines in occupancy due to travel restrictions.
The real estate market is incredibly diverse and comprises a wide variety of components. We cannot expect all of them to go down during a negative shock like the pandemic, or to thrive during a positive one.
Whether you invest in proptech companies or properties, here’s what you should take away from the pandemic: diversifying your investment portfolio is the best way to protect yourself against the impact of any single event.
This lesson is certainly nothing new in the investment world, but it’s a well-known fact that the pandemic further emphasized.
Moving Forward
While we all hope that the worst of the pandemic is behind us, we should not continue business as if nothing happened. Instead, we should look for ways to benefit from this experience—even though it’s something that we didn’t choose to go through. I believe that if we move forward with these four lessons in mind, we will reap much better profits in the real estate market—regardless of our exact role in it.