Residential Real Estate Returns to Earth, but Will Remain Strong
Residential real estate markets in the U.S. and abroad may be settling down from the frenzied pace of pandemic buying, but buyers waiting for significant slowdowns or price drops shouldn’t hold their breath, expert panelists said on the first day of Mansion Global’s Luxury Real Estate Conference on Tuesday.
“World city prime residential markets had the best first half of a year since 2016,” said Paul Tostevin, director for Savills World Research. “Seventy percent of cities monitored saw positive growth in the first half of this year.”
In cities as well as suburban and rural markets, the aftershocks of a wild 2020 are still very much being felt.
“To call this year unusual would be a major understatement,” said Danielle Hale, chief economist, Realtor.com. “In 2020, the housing market was off to a strong start, then the pandemic put it on ice for a couple of months, though we never saw home prices decline, only flatten. Then, as the economy opened back up, housing markets roared back to life and prices grew at double-digit paces.”
(Mansion Global is owned by Dow Jones. Both Dow Jones and Realtor.com are owned by News Corp.)
While 2021 has thus far been spared the wild ups and downs of the previous year, we’re still in the middle of an unusual market. As activity starts to normalize from the chaos of the past 18 months, below, some insights on what lies ahead from Tuesday’s panel discussions on residential real estate:
Cities Were Never Dead
While big cities—particularly those that rely heavily on foreign investment—unquestionably took a hit in the pandemic, some are already bouncing back stronger than ever.
“You really can’t go wrong with [investing in] New York,” said Vasiliki Yiannoulis-Riva, partner, Withersworldwide. “Even in an event like the pandemic where the market corrected for a bit, demand has soared, it’s through the roof.”
Similarly, in London, transaction volumes for properties above £5 million (US$6.7 million) were up 61% year over year, Mr. Tostevin said.
Meanwhile, smaller cities have also seen a significant influx of buyers seeking lower home prices and more space, while still prioritizing access to urban cultural amenities and a shorter commute to the office.
“Small cities have come out as places that can offer those things quite well,” Mr. Tostevin said. “They make it easy to nip into the office when needed, with cheaper living accommodations. We’ve seen that translate into price growth.”
For this reason, Ms. Yiannoulis-Riva said she is currently steering investors toward “places like Nashville, Austin [Texas], Atlanta, cities foreign investors don’t tend to think about, but are up and coming and vibrant because people are moving there for a higher quality of life.”
Markets May Normalize, but Don’t Call It a Bubble Burst
The breakneck growth of the past year has inevitably led to fears of a potential bubble. Though the pace of growth seen during the peak of the pandemic buying frenzy is not expected to continue, experts aren’t forecasting any precipitous drop in values, either.
“We do expect to see double-digit price growth continue throughout 2021 and into 2022,” said Molly Boesel, principal economist, CoreLogic. “There’s really short supply, and really high demand. Later in 2022 we do expect price growth to slow to about a 2% or 3% annual growth rate.”
Ms. Hale added, “The housing market has gone from frenzied to just hot, is how I would describe what happened in the last year.”
Rather than the speculation that fueled the run up in prices ahead of the 2007 housing market crash, “right now, we’re seeing fundamentals driving price appreciation,” said George Ratiu, senior economist and manager, Economic Research, Realtor.com. “Tremendous demand, not enough supply, a decade of under-building.”
In addition to the chronic overall lack of supply, millennial buyers have entered the market full force, a trend that shows no signs of slowing down.
“In a five- or six- year span, 25 to 30 million millennials are turning 30 [and entering the sales market],” Mr. Ratiu said. “Builders are barely keeping pace, so we’ll have these dynamics with us for the short to medium term.”
Foreign Investors Make Their Move
There’s one significant difference between the market in 2020 versus 2021 and 2022: As travel restrictions ease up around the globe, international investors are expected to get off the sidelines and back into the market.
“During the pandemic, we hadn’t seen a lot of inbound investment into U.S. real estate,” Ms. Yiannoulis-Riva said. “As restrictions lift, we’re going to see that come back in a very big way.”
In the meantime, investors from the U.S. and Canada have become a force in foreign markets, often driven by interest in visa and citizenship programs.
“One thing we’ve noticed throughout the pandemic is the emergence of significant demand from tier- one countries like the U.S. and Canada now applying for [visa] programs,” said Dominic Volek, group head of private clients, Henley & Partners.
And for luxury buyers, the trend towards “co-primary” residences might take their searches beyond the suburbs, and into foreign markets.
“Suddenly being in a second home for several months has become more viable, and that’s opened up a lot of destinations,” Mr. Tostevin said. “We’re seeing a lot of international demand return to rural and coastal France, for instance, and a lot of U.S. interest in Italian areas like Tuscany.”
Space and Lifestyle Amenities Win Out
While renters, buyers and investors alike are eager to shake off the pandemic and return to some semblance of normalcy, their priorities that took center stage over the past year aren’t going away any time soon.
“Look for home buyers and renters to continue to want more space,” Ms. Boesel said. “With hybrid working, the home office might become a permanent feature of the house.”
In new developments, residents spending more time at home are making heavier use of amenities, said Gabriel York, co-CEO, Lodha, and putting their focus on health, outdoor space, and community access.
“Going forward, as far as key drivers in the housing market, wellness is incredibly important,” said Jeff Tisdall, senior vice president development, Residential & Extended Stay, Accor. “We see amenities meeting that need in the market for community engagement, providing multipurpose flexible space that can be configured for everything from events to private classes.”
Rather than feeling isolated in their ivory towers, buyers in luxury developments are now looking for a healthy, community-minded experience.
“The world has become more seamless and more about integrating between public and private, between buildings and neighborhoods,” said Eran Chen, founder and executive director, ODA. “Beyond higher quality as far as things like outdoor space and natural light, [buyers are looking for] a new type of community living in buildings, where they can go from apartments to places that are collective. This will radically change the way buildings are being designed.”