Housing real estate holds a “secret,” a trick up its sleeves. It’s been helping the industry make billions...despite a historic recession and a raging pandemic.
Why is it that in a once-in-a-lifetime global pandemic, where economic anxiety and financial insecurity are at their peaks, the U.S. housing market managed to become a bright light in all the doom and gloom of Covid?
In a global recession, how does one industry boom?
When 2020 bankrupted industries like airlines, travel, restaurants, and entertainment, why was the housing market picking up and even in danger of overheating?
In a time when people are supposed to be social distancing, they are instead making deals and structuring significant, long-term real estate investments. (And how?)
There are several factors to this. We’re going to talk briefly about them, before finally talking about that one thing often missed by the world’s foremost top economists and thinkers.
Why is housing real estate booming? Here are the cited reasons:
The Fed, at the start of the pandemic in early March, cut the rates by 50 basis points. That turned out to be not enough to stimulate the economy, so 10 days later, in an unprecedented move, the Fed lowered rates to 0-0.25%.
This, in turn, put downward pressure on U.S. mortgage rates at that time.
The average 30-year fixed mortgage rate in 2020, before the pandemic, hovered around 3.75%. It fell in March, in consonance with the Fed’s moves. (It shot up briefly around April when news of the stimulus ruled the waves, but by and large, mortgage rates were down the rest of 2020.)
Among others, the Fed also bought substantial volumes of mortgage bonds during this pandemic ($300 billion each for March and April 2020, and $100 billion thereafter), which certainly helped push mortgage rates to record lows. It reached as low as 2.65% in January 2021.
And what a serious drop in price it was. The difference between paying a 30-year fixed mortgage at say, 3.73% and 2.67% (for a $300,000 home) is around $60,000.
This made the market very attractive to home buyers wanting to take advantage of historically low rates. Owning a home, or a second one, suddenly became a lot cheaper.
This was one of the explanations given for the rise of housing in a time of recession.
One curious thing about this though, is that the Fed interest rate is a blunt instrument that should affect all the different sectors in the economy. The fact that it has disproportionately impacted real estate seems to suggest that this is not the sole reason for the boom in the market.
Supply & Demand
As mentioned previously, the incredibly low home prices, increased the demand for homes. (There’s even an IMF study noting that a sort of “fear of missing out” psychology might have been at work.)
Zillow, one of the biggest names in the industry, reported that during September 2020, a house would sell in 16 days when it used to take 28. (That would be regardless of price, which was already skyrocketing.)
Homes Are Selling Incredibly Fast, Regardless of Price -- Defying Seasonal Norms https://t.co/pngXqeUwdk
— Kinetic Innovative Staffing (@KI_Staffing) September 29, 2021
On the supply side, 2020 was a time when homeowners were reluctant to sell their homes. Everybody was advised to stay in place and shelter, so sellers were not too keen on auctioning off the roof over their heads. Homebuyers, for their part, often bid up the few homes that were on the market.
Not only were new listings scant, because everybody was social distancing, scrounging up a crew to work on a new project proved very difficult, with workers asking for higher pay.
This interplay of supply and demand undoubtedly had an important role. With supply on the low, and the demand almost rabid, prices were skyrocketing and the sector was heating up.
But there’s also a third, more of a socio-cultural, culprit to the phenomenon.
Moving Out & Moving In
A tectonic shift in American culture was already taking place before the pandemic. But Covid-19 brought it to a whole new gear.
Americans are moving out of the big, crowded cities, and re-locating to environs that come with warmer weather and a more relaxed atmosphere. To someone living in New York, this might mean a move to some quaint corner of Phoenix, for example. Northeasterners are moving South and West.
Not that it wasn’t already happening, but Covid seemed to be the big nudge that allowed many to take the plunge. People are moving into smaller, warmer areas, with a better work-life balance.
This is not just about employees asserting their freedoms. Employers are not only happy to go along with it, they might be suggesting to folks to make the move to parts of the U.S. with fewer regulations and lower taxes. There has been a mass exodus from the big cities, that the State of California has reported a decrease in its population for the first time in recorded history.
Businesses themselves are moving their headquarters out of highly urbanized spots like California into states like Tennessee, Texas or Arizona. And they are doing so at an increasing rate.
Technology has so flourished that one can still do a bang-up job without ever stepping inside the office. The pandemic is proof positive of that. Many companies last year implemented remote working arrangements with employees and discovered they were able to operate, profitably, despite new working conditions.
But beyond the foreseeably temporary pressures of Covid, people are moving not just because of where they want to stay during the pandemic, it is more about where they want to relocate for the longer term.
(But lest one thinks big cities and first-tiered locations have become ghost towns, there are also folks going the other way. One can say that, ironically, instead of staying put and social distancing, the pandemic has given people the motivation to move about...for a-thousand-and-one different motives.)
And now, for the “secret” to this whole thing...
We’ve talked about the most commonly cited reasons why the housing market has remained very strong despite the recession.
I think there is still one piece of the puzzle often overlooked in the analysis of the phenomenon. I think they are key to the whole picture because, without them, there will be no deals (certainly not the high number of them materializing during a pandemic).
If you’re looking for the cogs who keep the wheels of the real estate industry turning ever faster, it’s the people working behind the scenes, facilitating every deal. They don’t figure into the analysis and are often faceless and nameless, but these are the very people who make the billions made in the real estate industry possible.
Think about it, who runs these operations?
Virtual assistants work on every phase of the process, from conceptualizing a listing to signing. VAs put their skills to bear on marketing, for example, by preparing buyer’s packets and PowerPoint presentations. They help on the advertising front by designing visual assets, both print and digital. They write emails, blog posts and run social media campaigns. They do prospecting, cold-calling, following up on potential buyers, and scheduling meetings. They research on properties, all the while compiling a report on data analytics of what works and what doesn’t.
Take all these functions from the equation and there is nothing left of the industry. You’ll have a hurried real estate agent juggling a cornucopia of tasks, running from one client to another. The industry will certainly not have the same high number of deals in a month.
In the pre-pandemic era, these functions were already done remotely. We’ve already mentioned in the section above how tech has made remote work possible. One doesn’t need to get into an office to perform admin and support tasks when all the files are digital and can be accessed from a different state, or maybe even from a different country.
The real estate industry has been uniquely prepared for the peculiarities of a global pandemic because it has long been heavy-conscriptors of virtual assistants. Competent professionals from countries like the Philippines have been working behind the scenes to support this industry. So “social distancing” is nothing new.
VAs—they just might be the piece that completes a complex picture, of how an industry continues to confidently chug along in the season of Covid.
You might want to take a page from its playbook and hire remote staff for your business or organization. Pandemic or not, all labour trends certainly point to the wisdom of hiring excellent support staff...at the fraction of the cost.
VAs are the unsung heroes of the real estate industry...They can also be in yours.
Kinetic Innovative Staffing has been providing hundreds of companies in the Asia Pacific, North America, the Middle East, and Europe with professionals working remotely from the Philippines since 2013. Get in touch to know more.