{"id":128240,"date":"2020-08-04T11:30:05","date_gmt":"2020-08-04T17:30:05","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=128240"},"modified":"2022-05-31T09:33:29","modified_gmt":"2022-05-31T15:33:29","slug":"7-emerging-trends-shaping-real-estate-markets-2020","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/7-emerging-trends-shaping-real-estate-markets-2020","title":{"rendered":"7 Emerging Trends Shaping Real Estate Markets in 2020"},"content":{"rendered":"<p>The world is experiencing a decade\u2019s worth of social and economic change, compressed into a single year. With such rapid change comes greater risk for investors\u2014and great opportunities. Keep an eye on the following trends, as you navigate the choppy waters of 2020.<\/p>\n<h2>High Unemployment, Slow Recovery<\/h2>\n<p>The last time the US saw double-digit unemployment was the aughts. Specifically 2009, in the throes of another financial crisis.<\/p>\n<p>Unemployment leaps upward during recessions, then gradually floats downward over the course of years. As a <a href=\"https:\/\/www.biggerpockets.com\/blog\/7-lessons-08-recession-apply-today\" target=\"_blank\">lesson from the Great Recession<\/a>, it took an entire decade (2007-2017) for the unemployment rate to recover its pre-recession level.<\/p>\n<p>Of course, unemployment doesn\u2019t 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:<\/p>\n<p><iframe id=\"datawrapper-chart-efrPn\" style=\"width: 0; min-width: 100% !important; border: none;\" title=\"Unemployment Rate by County (June 2020 \u2013 Released 7\/29\/20)\" src=\"https:\/\/datawrapper.dwcdn.net\/efrPn\/6\/\" height=\"444\" frameborder=\"0\" scrolling=\"no\" aria-label=\"map\"><\/iframe><\/p>\n<p>Note that in recessions, affordable housing tends to do well. Even in a worst-case scenario for unemployment, Damian Bergamaschi showcases how <a href=\"https:\/\/www.damriscapital.com\/post\/unemployment-vs-rental-property-covid-19\" target=\"_blank\" rel=\"noopener\">affordable housing like mobile home parks don\u2019t get hit too hard<\/a>. Indeed, <a href=\"https:\/\/www.biggerpockets.com\/blog\/why-real-estate-beats-stocks-during-a-recession\" target=\"_blank\">real estate in general proves far more stable in recessions than stocks<\/a> and other asset classes.<\/p>\n<h2>E-Learning Costing Private Colleges (and College Towns)<\/h2>\n<p>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, <a href=\"https:\/\/trends.google.com\/trends\/explore?date=today%205-y&amp;q=online%20course\" target=\"_blank\" rel=\"noopener\">Google searches for \u201conline course\u201d<\/a> doubled earlier this year.<\/p>\n<p>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?<\/p>\n<p>The majority of US colleges have seen a drop in new student enrollment of over 5% for the 2020-2021 school year, per <a href=\"https:\/\/www.cnbc.com\/2020\/05\/27\/a-growing-number-of-colleges-could-close-for-good-post-pandemic.html\" target=\"_blank\" rel=\"noopener\">CNBC<\/a>, which notes that analysts worry hundreds of schools will close permanently.<\/p>\n<p>For real estate investors in college towns, that has profound implications. Even when colleges don\u2019t close their doors entirely, an online or hybrid model will mean drastically lower demand for student housing, and for the local economy in general.<\/p>\n<p>Beware of investing in any market that relies on a single employer or industry. You never know when they\u2019ll disappear.<\/p>\n<h2>Telecommuting<\/h2>\n<p>Much has been said about the rise of remote work in 2020. According to a <a href=\"https:\/\/news.gallup.com\/poll\/306695\/workers-discovering-affinity-remote-work.aspx\" target=\"_blank\" rel=\"noopener\">Gallup poll<\/a>, three in five workers plan to keep telecommuting even after the pandemic.<\/p>\n<p>That has profound implications for today\u2019s expensive office space. Employers are finding they can get by just fine with remote work, and don\u2019t 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.<\/p>\n<p>Particularly in the most expensive, largest cities.<\/p>\n<h2>De-Urbanization<\/h2>\n<p>I love city living, but it\u2019s certainly lost some luster in 2020.<\/p>\n<p>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.<\/p>\n<p>With so many people able to work from anywhere, not just the expensive market near their company\u2019s headquarters, more workers have been eyeing smaller cities, towns, and <a href=\"https:\/\/www.biggerpockets.com\/blog\/invest-rural-areas\" target=\"_blank\">rural areas<\/a>. A <a href=\"https:\/\/assignmentbro.com\/blog\/migration-out-of-american-cities-during-the-pandemic\" target=\"_blank\" rel=\"noopener\">Harris poll<\/a> found that more than double the number of urban residents (43%) are looking for a new home compared to rural residents (21%):<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full\" src=\"https:\/\/sparkrental.com\/wp-content\/uploads\/2020\/07\/Percent-of-Residents-Looking-to-Move.jpg\" width=\"907\" height=\"390\" alt=\"\" title=\"\"><\/p>\n<p>And let\u2019s be honest: even people who support social movements and protests don\u2019t 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.<\/p>\n<p>Real estate investors should <a href=\"https:\/\/www.biggerpockets.com\/blog\/6-ways-coronavirus-pandemic-changed-investing-plans\" target=\"_blank\">reevaluate their investing strategy<\/a> in the wake of these changes. Keep an eye out for declining demand in the largest, most expensive cities, as <a href=\"https:\/\/www.biggerpockets.com\/blog\/rents-collapse-across-us\" target=\"_blank\">Americans migrate to second-tier cities<\/a>, 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\u2019s a good life. My wife and I maintain a 60% savings rate, largely because we live overseas.<\/p>\n<h2>Tourism: Weaker in Urban &amp; Flight-Necessary Destinations<\/h2>\n<p>For all the reasons outlined above, urban tourism has suffered in 2020. It\u2019s simply not a great time to visit large, densely populated cities.<\/p>\n<p>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 <a href=\"https:\/\/www.iata.org\/en\/pressroom\/pr\/2020-07-28-02\/\" target=\"_blank\" rel=\"noopener\">International Air Transport Association<\/a>.<\/p>\n<p>People are still traveling, but they\u2019re 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.<\/p>\n<p>Like everything else in 2020, vacation rentals have not been hit evenly. Keep an eye out for opportunities, while also watching for heightened risk.<\/p>\n<h2>Household Bundling<\/h2>\n<p>The last time we talked about \u201chousehold bundling\u201d 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.<\/p>\n<p>There\u2019s no easy data on household bundling, so I can\u2019t demonstrate this with statistics. But anecdotally, it seems both widespread and obvious. My much-younger siblings have all moved back in with my parents\u2014a trend followed by most of their friends. I\u2019ve heard similar stories from many different sources.<\/p>\n<p>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.<\/p>\n<p>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, <a href=\"https:\/\/www.ahrn.com\/\" target=\"_blank\" rel=\"noopener\">housing near military bases<\/a> always enjoy strong demand\u2014if at the expense of high turnover rates.<\/p>\n<h2>High Turnover<\/h2>\n<p>One of the buzzwords you can\u2019t escape in 2020 is \u201cuncertainty.\u201d In the face of all the economic and public health uncertainty, fewer renters want to renew long-term leases.<\/p>\n<p>One <a href=\"https:\/\/www.housingwire.com\/articles\/renters-say-they-are-less-likely-to-renew-lease-after-pandemic\/\" target=\"_blank\" rel=\"noopener\">survey by HousingWire<\/a> 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:<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full\" src=\"https:\/\/sparkrental.com\/wp-content\/uploads\/2020\/06\/renters-plans-to-renew-lease-agreements-2.jpg\" width=\"834\" height=\"289\" alt=\"\" title=\"\"><\/p>\n<p>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 <a href=\"https:\/\/www.biggerpockets.com\/blog\/visualizing-cash-flow\" target=\"_blank\">how rental cash flow works here<\/a>.<\/p>\n<p>The potential for high turnover rates marks yet another way that the <a href=\"https:\/\/www.biggerpockets.com\/blog\/impact-of-covid-19-on-real-estate-investors\" target=\"_blank\">coronavirus pandemic has impacted real estate investors<\/a>.<\/p>\n<h2>Final Thoughts<\/h2>\n<p>No one is safe from disruption in 2020.<\/p>\n<p>As pundits drone on about \u201cthe new normal\u201d and overuse words like \u201cunprecedented,\u201d keep the above trends in mind as a real estate investor. No one knows for certain how permanent they\u2019ll each prove, but I personally suspect that many\u2014if not most\u2014white-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.<\/p>\n<p>For all the headlines about real estate bidding wars, I still can\u2019t sell or rent my vacant urban rental property. There just isn\u2019t the same demand to live downtown right now.<\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/store\/retire-early-with-real-estate-ultimate?utm_source=blog\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-127281\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/06\/REREI-blog-ad.jpg\" alt=\"\" width=\"700\" height=\"120\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/06\/REREI-blog-ad.jpg 700w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/06\/REREI-blog-ad-300x51.jpg 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><\/p>\n<p><em>What trends do you see impacting real estate markets right now? How do you plan to capitalize on them?<\/em><\/p>\n<p><strong>Share in the comment section below.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>A decade&#8217;s worth of social and economic change is being compressed into a single year. With rapid change comes greater risk for investors\u2014and opportunities.<\/p>\n","protected":false},"author":158586,"featured_media":125788,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5528],"tags":[],"class_list":["post-128240","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-news"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/128240","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/158586"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=128240"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/128240\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/125788"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=128240"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=128240"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=128240"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}