Real Estate News & Commentary

7 Emerging Trends Shaping Real Estate Markets in 2020

Expertise: Landlording & Rental Properties, Real Estate News & Commentary, Personal Finance, Real Estate Investing Basics
133 Articles Written
Unemployment-rate

The world is experiencing a decade’s worth of social and economic change, compressed into a single year. With such rapid change comes greater risk for investors—and great opportunities. Keep an eye on the following trends, as you navigate the choppy waters of 2020.

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High Unemployment, Slow Recovery

The last time the US saw double-digit unemployment was the aughts. Specifically 2009, in the throes of another financial crisis.

Unemployment leaps upward during recessions, then gradually floats downward over the course of years. As a lesson from the Great Recession, it took an entire decade (2007-2017) for the unemployment rate to recover its pre-recession level.

Of course, unemployment doesn’t strike evenly. The Rust Belt, Northeast, and California are all suffering worse unemployment than the rest of the country; take a look at this interactive map showing county-level data:

Note that in recessions, affordable housing tends to do well. Even in a worst-case scenario for unemployment, Damian Bergamaschi showcases how affordable housing like mobile home parks don’t get hit too hard. Indeed, real estate in general proves far more stable in recessions than stocks and other asset classes.

E-Learning Costing Private Colleges (and College Towns)

Online learning became compulsory just about everywhere in the US in the spring of 2020, and largely continues entering the fall semester. And as a sign of the times, Google searches for “online course” doubled earlier this year.

But it raises some fundamental questions about the value of college education. If a student can have the same educational experience for $4,000/year through an online university, why would they ever pay $40,000/year for a private liberal arts college?

The majority of US colleges have seen a drop in new student enrollment of over 5% for the 2020-2021 school year, per CNBC, which notes that analysts worry hundreds of schools will close permanently.

For real estate investors in college towns, that has profound implications. Even when colleges don't close their doors entirely, an online or hybrid model will mean drastically lower demand for student housing, and for the local economy in general.

Beware of investing in any market that relies on a single employer or industry. You never know when they’ll disappear.

Telecommuting

Much has been said about the rise of remote work in 2020. According to a Gallup poll, three in five workers plan to keep telecommuting even after the pandemic.

That has profound implications for today’s expensive office space. Employers are finding they can get by just fine with remote work, and don’t need to blow an enormous budget on office space. Many are scrambling to get out of long-term leases, and that leaves commercial landlords in serious trouble.

Particularly in the most expensive, largest cities.

De-Urbanization

I love city living, but it’s certainly lost some luster in 2020.

There are two broad reasons to live in a city: convenience to get to work, and access to entertainment and cultural amenities. The first is being decimated by the explosion in telecommuting, the second by mass closures of restaurants, bars, museums, and other amenities due to the pandemic.

With so many people able to work from anywhere, not just the expensive market near their company’s headquarters, more workers have been eyeing smaller cities, towns, and rural areas. A Harris poll found that more than double the number of urban residents (43%) are looking for a new home compared to rural residents (21%):

And let’s be honest: even people who support social movements and protests don’t enjoy a front-row view from their home. My wife and I lived through protests and looting on our block in Baltimore a few years back, and after a sleepless night guarding the door with bear mace, my wife told me in no uncertain terms that we were moving out of the city.

Real estate investors should reevaluate their investing strategy in the wake of these changes. Keep an eye out for declining demand in the largest, most expensive cities, as Americans migrate to second-tier cities, more rural areas, and even moving abroad. As an expat myself who enjoys free housing, excellent healthcare, lower income taxes, and a much lower cost of living, I can assure you that it’s a good life. My wife and I maintain a 60% savings rate, largely because we live overseas.

Tourism: Weaker in Urban & Flight-Necessary Destinations

For all the reasons outlined above, urban tourism has suffered in 2020. It’s simply not a great time to visit large, densely populated cities.

Likewise, destinations that typically require a flight to reach have also seen a collapse in tourism. Air travel in June was down 86.5% from a year earlier, according to the International Air Transport Association.

People are still traveling, but they’re doing so by car this year. Mountain destinations, nature destinations, easily accessed beach destinations, and other get-out-of-the-city travel have surged in 2020.

Like everything else in 2020, vacation rentals have not been hit evenly. Keep an eye out for opportunities, while also watching for heightened risk.

Household Bundling

The last time we talked about “household bundling” was the Great Recession, when people who would ordinarily live separately moved in together to save money. Think twenty-somethings moving back in with their parents, young professionals sharing a two-bedroom apartment rather than each renting their own one-bedroom, and couples moving in together a bit earlier than they might otherwise.

There’s no easy data on household bundling, so I can’t demonstrate this with statistics. But anecdotally, it seems both widespread and obvious. My much-younger siblings have all moved back in with my parents—a trend followed by most of their friends. I’ve heard similar stories from many different sources.

This creates yet another trend pulling down demand for urban housing. The 23-year-old who would be renting a downtown apartment in a hip neighborhood is now living with mom and dad for the indefinite future, trying to find a job. That leaves the landlord of that downtown apartment with fewer applications and longer vacancies.

One way that real estate investors can protect themselves from these kinds of demand shakeups is to invest in an area with hyper-stable housing demand from a near-guaranteed employer. For example, housing near military bases always enjoy strong demand—if at the expense of high turnover rates.

High Turnover

One of the buzzwords you can’t escape in 2020 is “uncertainty.” In the face of all the economic and public health uncertainty, fewer renters want to renew long-term leases.

One survey by HousingWire found that a mere 26.1% of renters plan to renew their lease agreements when they end. Among more expensive leases of $1,750 or more, even fewer (18.7%) planned to renew:

That should worry landlords, for whom most of the labor and expenses involved in owning rental properties come from turnovers. See a visual breakdown of how rental cash flow works here.

The potential for high turnover rates marks yet another way that the coronavirus pandemic has impacted real estate investors.

Final Thoughts

No one is safe from disruption in 2020.

As pundits drone on about “the new normal” and overuse words like “unprecedented,” keep the above trends in mind as a real estate investor. No one knows for certain how permanent they’ll each prove, but I personally suspect that many—if not most—white-collar workers will continue telecommuting long after COVID-19 disappears. That has profound implications for both commercial office space and expensive urban and suburban residential real estate.

For all the headlines about real estate bidding wars, I still can’t sell or rent my vacant urban rental property. There just isn’t the same demand to live downtown right now.

What trends do you see impacting real estate markets right now? How do you plan to capitalize on them?

Share in the comment section below.

G. Brian Davis is a landlord, personal finance expert, and financial independence/retire early (FIRE) enthusiast whose mission is to help everyday people create enough rental income to cover their ...
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    Kellon Parkinson Investor from Utah
    Replied about 2 months ago
    Great article. Thanks for addressing some of the questions we've all been wondering! Also, sorry to hear that about your urban rental. Hope you find a solution.
    G. Brian Davis from Baltimore, MD
    Replied about 2 months ago
    Thanks Kellon, much appreciated!
    Mehul Patel Rental Property Investor from Atlanta, GA
    Replied about 2 months ago
    First of all, great article with lots of insightful thoughts and data. You mentioned you live overseas. Do you mind sharing where and why you decided to move out of the country? Do you invest both in the states and overseas and what are the advantages/disadvantages of both? Thanks!
    G. Brian Davis from Baltimore, MD
    Replied about 2 months ago
    Thanks Mehul! I currently live in Brasilia, the capital of Brazil, although we were in Abu Dhabi (capital of the UAE) for four years before that. I don't invest in overseas real estate currently, at least not directly. We originally moved out of the country both to save some money and to have an adventure, and both have been a success. My wife is an international school counselor.
    Randy Cooper from Tracy, California
    Replied about 2 months ago
    Thanks for your thoughtful insights. It’s all about the long term plans you make now.
    G. Brian Davis from Baltimore, MD
    Replied about 2 months ago
    So true Randy!
    Edwin F Zhingri
    Replied about 2 months ago
    Tanks for sharing. Would you say suburban areas are also as affected as urban?. I've read that NYC is seeing a huge move out of the city but not sure if that means into the outsides of the city or to rural areas. Wondering if investing in rural areas may be a good idea. Sorry to hear about your urban rental property; hope you get a good tenant in soon.
    G. Brian Davis from Baltimore, MD
    Replied about 2 months ago
    The suburbs are seeing a resurgence in popularity, largely driven by millennials who have reached the "married with kids and a dog" phase of life. A lot of bidding wars going on in many suburbs right now!
    Ken Goodman Investor from Los Angeles, California
    Replied about 2 months ago
    Thanks for another terrific column, Brian. So far, our portfolio in Baltimore County/Howard County/Anne Arundel County has held up very well. Combination of military/Section 8. Careful tenant screening and communication has served us well.
    G. Brian Davis from Baltimore, MD
    Replied about 2 months ago
    Glad to hear it Ken! You're from my neck of the woods as well.
    Sam Lewis Real Estate Agent from Baltimore, MD
    Replied about 2 months ago
    This is great to hear... also have a S8 tenant and planning to have more
    Sam Lewis Real Estate Agent from Baltimore, MD
    Replied about 2 months ago
    Excellently written article. Cheers to your ex-pat status! Will be joining you soon
    G. Brian Davis from Baltimore, MD
    Replied about 2 months ago
    Thanks Sam! It's a great life, just takes some initial setup, and you have to accept the tradeoff that you'll miss the occasional wedding, birth, or funeral. I'm really enjoying expat life though.
    Erin Spradlin Real Estate Agent from Denver, CO
    Replied about 2 months ago
    Thanks, Brian. Thoughtful article. I work with a lot of investors in Colorado Springs and I am very happy that it's a diversified market: tourism, hospitals, some tech and three main colleges. Re colleges, I think that the satellite schools and state schools may suffer more of an impact than the private schools. The reason I think this is that, economically, it has made sense for a long time to send your kids to a commuter school/state school/online school, but the wealthy have still opted for the more expensive/lifestyle experience. I think that demand will hold as it has for years despite data suggesting some of these outrageously priced colleges are a rip off. It's lifestyle/cache/experience that they pay for, and I think that will persist. Likewise, the short-term rental market here remains incredibly strong. In the midst of this pandemic, Colorado Springs is having its highest hotel occupancy rates, so being a desirable, land locked, mountain adjacent city has proven to be a positive.
    G. Brian Davis from Baltimore, MD
    Replied about 2 months ago
    Glad to hear Colorado Springs is holding up well during the pandemic Erin!
    Croix Fossum
    Replied about 2 months ago
    Great article! Helpful to consider the trends as I plan to start investing in real-estate in the new few years!
    G. Brian Davis from Baltimore, MD
    Replied about 2 months ago
    Thanks Croix, and best of luck as you begin your real estate investing journey!
    Andrew B. from Redondo Beach, California
    Replied about 2 months ago
    Sounds like you have a great setup abroad, what country are you living in that has the lower taxes and excellent health care system?
    G. Brian Davis from Baltimore, MD
    Replied about 2 months ago
    Hi Andrew, we're currently living in Brasilia, the capital of Brazil. Excellent healthcare here, although we have high-end health insurance through my wife's job, which helps. As for the taxes, Brazil does charge income taxes, but as an expat who doesn't earn any money in Brazil itself, I decided to only file my return in the US.
    Mike Lambert Rental Property Investor from Montréal, Québec
    Replied about 1 month ago
    Brian, Brazil is no Panama or Uruguay. You're a tax resident of Brazil if you spend more than 183 days in a given year in the country. In that case, Brazil taxes you on your worldwide income, as all non-tax haven countries would do, irrespective of whether you earn any money in Brazil. Regarding your US-sourced income, you can deduct your US taxes from your Brazilian taxes if there is a taxation treaty between both countries for the avoidance of double taxation that is applicable for that specific category of income. If not, you'll be taxed in Brazil on the same income. In any case, you have to file a tax return in Brazil. This applies unless there is an exception I wouldn't be aware of. In any case, you should probably consult with a Brazilian tax professional if you haven't already done so.
    G. Brian Davis from Baltimore, MD
    Replied about 1 month ago
    I appreciate you looking out Mike. We do file a tax return in Brazil.
    Rebecca Jackson Rental Property Investor from Dallas, TX
    Replied about 1 month ago
    I think 2020 is an excellent year to build capital, pay down debt and position oneself strategically as the dust begins to settle.
    G. Brian Davis from Baltimore, MD
    Replied about 1 month ago
    I agree Rebecca. With so many asset classes looking overvalued or offering poor projected returns, and so much uncertainty, it's a good time to consolidate your finances and see what happens.