COVID-19 is both a health crisis and an economic debacle — though it hasn't yet caused housing prices in metro Denver to plummet, as local real estate expert Victoria Macaskill recently pointed out.
But what about down the road?
"Seven Ways Coronavirus Will Reshape the Housing Market," a new analysis by Igor Popov, chief economist for Apartment List, is a fascinating attempt to predict future changes even as we're still in the midst of the outbreak, with no clear idea as to how and when a recognizable version of normality will return.
The piece focuses on potential developments in the United States as a whole, but Popov accepted Westword's request to supplement his prognostications with best guesses about how Denver will be affected. His comments about the Mile High City, juxtaposed with excerpts from his original report, suggest that the financial earthquake currently shaking the city will be followed by a series of aftershocks that could alter the local market permanently.
1. Mobility will be low in the near-term and spike in recovery
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"Moves fuel the housing market. In the coming months, both safety concerns and economic uncertainty will keep more people in their current homes. Geographic mobility generally declines during downturns, when a lack of job opportunities catalyze fewer long-distance moves across markets or housing upgrades. This time around, infection concerns and social distancing will lead to even fewer people wanting to move. Eviction and foreclosure moratoriums will further slow mobility by keeping households affected economically from experiencing housing instability during a health crisis...."
Denver-specific observations: "Lower residential mobility across the country will halt the rate of change of the Denver market. In our data, we find that Denver has been attracting renters from outside of the city at a higher rate than any other metro. Denver has been growing rapidly, but this growth will be put on pause as people and companies stop moving in."
2. The “remote work experiment” will cause companies and workers to reconsider their location
"Over the last decade, many companies (new and old) have invested in proximity, paying sky-high commercial rents in knowledge hubs such as San Francisco, Seattle, and New York City. In response to COVID-19, however, many of these companies are now having all their employees work from home in an unprecedented 'remote work' experiment. Though many can’t wait for their daily routines to resume normalcy, some firms will surely deem the experiment a success. Firms whose employees remained productive and innovative during this period may not want to resume normal operations (and re-sign the lease on the office space). Similarly, workers who find themselves happier working at home without a commute may want to continue the arrangement even after coronavirus fades...."
Denver-specific observations: "Denver is already the metro with the third-highest rate of full-time employees working from home. The rise of remote work may grow demand for rentals in Denver even more if high-skilled workers untether from expensive coastal metros to work remotely."
3. America will hit pause on the long-run trend of urbanization
"Cities thrive on social interaction, and the outbreak of coronavirus turned off most of the benefits of urban living overnight. Shared spaces and assets in the form of restaurants, co-working, and events don’t exist in the temporary quarantine economy. The small businesses that power these activities will be hit hard in the meantime, possibly needing to close or relocate to lower-cost areas. Time will tell whether the trend of urbanization will reverse, but we should expect the expanding economies of dense urban areas to take a significant hit in the next year...."
Denver-specific observations: "Denver has options for both suburban and urban living, so I don't think this will affect the Denver metro as much."
4. Rents will fall for some, but affordable housing will be hard to find
"Before COVID-19, affordable rentals and homes for sale were already in short supply across many markets. In 2019, a quarter of all renter households spent half of their income on rent. Fewer people moving means fewer homes available. With both pandemic and policy keeping people in place, affordable units will become even more rare through the 2020 peak season...."
Denver-specific observations: "I expect rents at the higher end of the market to fall in Denver over the next one-two years. There's a significant amount of new inventory across amenity-rich apartment communities in Denver, and the recession will slow Denver's quick rise of high-income renters."
5. Housing inequality will grow
"Uneven growth in housing costs has exacerbated income inequality in the U.S. since the Great Recession. Since 2008, the bottom 10 percent of earners have seen their housing costs rise, while the richest quarter of the population has actually seen their housing costs fall. The pandemic’s economic effects are likely to accelerate this trend. Over the next two years, higher earners will take advantage of low borrowing costs for refinancing and abundant luxury rental inventory, while lower-income households will struggle with economic uncertainty and even greater competition for an already tight inventory of affordable housing..."
Denver-specific observations: Popov expects Denver to experience this phenomenon much like the rest of the country.
6. Homeownership plans will have to wait for many young renters
"Last year, we estimated that nearly half of millennial renters who planned to purchase a home had saved nothing for a down payment. The other half has likely seen a significant hit to their savings in the past few weeks. Home values, however, are unlikely to fall significantly because (1) low mobility leads to low available supply on the market and (2) home values may still capitalize optimism about a strong recovery. The result is that many young renters will delay homeownership even further...."
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Denver-specific observations: "Denver's economy should be resilient in a recovery. That's the good news. The bad news for aspiring homeowners is that home prices won't fall very far in a recession as a result. Down-payment savings, on the other hand, are taking a big hit if they're invested in the market."
7. The rise of sight-unseen housing choices will accelerate
"Many families will still need to move in 2020, and those that do will be more likely to move into a new home sight-unseen than ever before. Many apartment communities are already enabling virtual tours in response to the pandemic, and many renters and owners alike may soon be evaluating their next home through a tablet screen. Mainstream adoption of sight-unseen moves will bring both opportunities and challenges for the housing market...."
Denver-specific observations: Again, Popov sees this development hitting the Mile High City in much the way it will be "taking place across the nation."