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A Five-Point Analysis To Understand Where The Housing Market Is Going

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Lately, everyone has been asking the same question: Where is the housing market going? I decided to create my own index to help us think about the impact of the coronavirus pandemic on real estate in a new manner.

These are the criteria for my post-pandemic housing index. I assigned each criterion a score from 1 to 5:

1. Was the region impacted by COVID-19? (1 for very impacted; 5 for not impacted at all.)

2. Is the area crowded or tied to a crowded industry, such as casinos/hotels? (1 for very crowded; 5 for not crowded at all.)

3. Do or will residents want to leave this area due to high taxes, perceived danger or crowding? (1 for most desire to leave; 5 for least.)

4. Do I expect the area to experience a second surge of the virus in the fall of 2020? (1 for yes; 2 for no.)

5. Does this area have a high housing supply? (1 for high supply; 5 for low.)

Let’s look at two areas as examples: New York City and Jacksonville, Florida.

New York City

1. New York City has been referred to as the epicenter of the pandemic in the United States. At the time of this writing, NYC alone has experienced over 212,000 cases and 21,000 deaths due to COVID-19. For this reason, I assign a rating of 1 to NYC for impact on the region.

2. In terms of population density, with over 27,000 residents per square mile, of all major cities, New York City has the highest population density in the U.S. Because it’s at the top of the list, I again assign it a 1.

3. The next question is around people exiting the area. This also doesn’t bode well for NYC. According to U.S. Census data, people are leaving New York at a faster rate than nearly any other state in the nation — and that was before the pandemic. Therefore, I give NYC another 1 rating.

4. (Note that this criterion’s rating is not based on medical expertise, but my impression of resident sentiment.) I personally suspect that given the concentration of people, NYC is positioned to experience a second surge of the virus, but given the expectation, residents and government will be more careful and better prepared. I assign a 3 out of 5.

5. Finally, regarding the supply of inventory, the citywide vacancy rate in New York is 3.6%, held against a national average of 6.6%. With all the issues that have occurred the last few months, I see this getting worse, and therefore assign a 3.

The final score for New York City is 9.

Jacksonville, FL

1. Duvall County (home to Jacksonville) had experienced just over 1,800 cases of COVID-19 at the time of this writing. Comparing this to national and NYC figures, I assign a 4 out of 5 for pandemic impact.

2. Next is the density of the area. Jacksonville is pretty spread out, with 1,177 people per square mile. Therefore, I give Jacksonville a 4 rating.

3. The third consideration is the number of people exiting the region. According to the Jacksonville Business Journal (paywall), Jacksonville is adding new residents at a faster rate than most other places in the U.S. Therefore, I give the city a 5 out of 5.

4. (Note that this criterion’s rating is not based on medical expertise, but my impression of resident sentiment.) Given the relatively minor impact of the first wave on Jacksonville, and the lack of fear of a second surge, I assign a 3 out of 5 rating.

5. Lastly, Jacksonville’s vacancy rate is estimated to be around 5%. For this reason, I assign a 3 out of 5 given the national average of 6.6%.

The final score for Jacksonville is 19.

What does this tell us?

If a region has a score of 12 or lower, I suspect there will be a 10%-15% drop in the housing market. If a region has a score of 12-18, I predict a drop of roughly 5%-10%, and with a score of 18 or higher, I expect relatively unchanged real estate prices. We will see one of the widest ever gaps in cities around the country. The only remaining factor is your opinion on how long or short the economic and housing market recovery will be.

The supply and inventory constraint is a factor that will support the housing market because of its supply and demand dynamic. There is also the factor of migration for affordability and demand for urban areas, which will see a shift due to many people’s desire to be in areas perceived as less dangerous and with lower taxes. Because of the dynamic, we will see a quicker move to sell and leave less-desirable areas.

We can also expect that a shift will have a political impact, which may force prices down now and over the long term before we see a shift back to urban areas. For the time being, expensive homes will see a big price impact. I predict that high-tax states will experience a large outflow of residents, and areas tied to “crowd industries” like casinos and hotels will see an exit due to a smaller opportunity set in the job market.

With 40 million unemployed Americans, those who were on the fence will act more quickly than ever to find affordable living regions. For years, people wanted to live in cities rather than the suburbs. But following the pandemic, many people will want to be near their families and out of the city. I predict we will see prices go down in NYC, while nearby suburbs like Long Island may experience no change to the solid housing market.

The future is uncertain, but there are interesting ways to analyze the coming impacts to the real estate market. You may want to analyze your region and decide if you want to invest, buy or sell given these factors.

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