Housing Markets Post-COVID: Which Ones Win? Which Lose?

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An essential rule in real estate investing never wavers: location, location, location.

When looking for a property, dialing in on where people want and need rentals is key. Look at population and job growth. Find out where there is a limited supply of houses and great demand. This will ensure you’ll find tenants. It also usually means property values will appreciate over time.

And now, COVID-19 is creating a new variable. Based on prices being sky-high in many markets—with a correction looming—some areas of the United States remain more vulnerable than others.

Read on for an overview of what’s going on in several areas of the country. Along the way, we’ll discuss how to analyze markets so that you can maximize your real estate investments once the COVID-19 dust settles.

How to Identify Housing Markets That Will Remain Strong Post-Pandemic

Where I live in Austin, Texas, prices continue to rise. There is a bidding war on almost any property for sale in the city. Even though it is clear that millions across the country have a mortgage in forbearance, the demand in Austin seems so high that the city may come out unscathed when the pandemic is in the rearview mirror.

Like Austin, other areas have continued to see population increases over the past few months. There has been a mass exodus from several once-thriving cities, in fact. According to the USPS, over 15.9 million people moved in the first six months of the pandemic. This is excellent information in terms of understanding significant shifts in supply and demand in the housing market.

Take Business Insider, which cited nine states where the population dramatically increased over the past six months: North Carolina, Oregon, Arizona, Kentucky, Maine, South Carolina, Delaware, New Mexico, and Idaho.

Meanwhile, per ATTOM Data Solutions, the six counties least at risk of suffering a significant downturn are in densely populated areas. The reason is simple: Where there are people, there is a need for housing. The counties identified by ATTOM include Tarrant County (Fort Worth), Texas; Travis County (Austin), Texas; Marion County (Indianapolis), Indiana; and Denver and Arapahoe counties in Colorado.

While buying in these areas is enticing, finding deals—especially cash-flowing properties—is very competitive. In other words, you can most certainly find a tenant, but after you pay top dollar in a bidding war for the house, the rent may not cover your mortgage and expenses for the property.

If you cannot afford to cover a few hundred or more out of pocket every month, you may need to go further outside these central areas and into the suburbs—or even move to another state altogether.

Which Real Estate Markets Will Be Hit Hardest by COVID-19?

As should be expected, dips are likely to occur by city and county—not by states as a whole—per ATTOM Data Solutions. However, Connecticut, New York, New Jersey, Pennsylvania, Maryland, and Delaware made up for 32 of the 50 counties that were most vulnerable to the pandemic’s economic impact in the third quarter.

ATTOM identified five suburban counties in the New York City metropolitan area, four around Washington, D.C., four around Philadelphia, four around Baltimore, and seven of Connecticut’s eight counties.

In addition, USA Today has also called out 30 cities on the verge of a COVID-driven housing crisis. Examples include Las Vegas; New Orleans; Bakersfield, California; Los Angeles; and Miami.

“Areas where housing costs are high relative to income and where recent spikes in demand may have created local housing price bubbles may be at a greater risk of a COVID-19-driven crisis, as would areas that were already struggling prior to the coronavirus outbreak,” USA Today noted.

Another indication of areas that will be affected heavily: those where the economy is relatively dependent on one industry or where a state has a number of small companies. Many businesses have had to close their doors permanently, and entire metro regions may be impacted as a result.

The lesson of an undiversified economy was witnessed in Detroit, coined the “Motor City,” during the car industry crash that devastated its economy in 2008. The downfall, coupled with a nationwide recession, tanked the city’s housing market to the point where homes were unbelievably inexpensive for years to come.

In fact, many investors and homeowners steered clear of Detroit for a time. But in the past few years, the Detroit real estate market turned around—and those who got in early earned a great return.

How Long Will It Take for Markets to Recover Post-Coronavirus?

Too many vacancies inevitably drive rent prices down. In fact, millions were rendered unemployed overnight when the Big Apple shut down. And as COVID-19 numbers continue to rise, housing issues will continue to compound.

Landlords will likely be forced to charge less for rents to stay competitive. Owners will realize having some rent is better than none at all!

Strangely, you can get a deal in Manhattan right now, depending upon the area. According to Forbes, Manhattan prices have dropped 5.3% year over year, per data from Redfin. However, not all areas have been affected evenly.

For instance, since last year, home prices are down 56.5% on the Lower East Side, 34.8% in Tribeca, and 36.3% in the Financial District—its neighbor to the south. But if you head north to Murray Hill on the East River, home prices are up 47.2%.

Yes, many have left Manhattan. But it is still considered one of the world’s greatest places to live, according to Nordada. And as such, prices will likely increase 6% over the next 12 months.

COVID-19 Forecast: What’s Next for Housing?

“While it’s unlikely that we’ll see a return to the historically high levels of foreclosure activity we saw during the Great Recession, it’s a near-certainty that the number of defaults will increase once the foreclosure moratoria have been lifted and the CARES Act forbearance program expires,” said Rick Sharga, executive vice president of RealtyTrac. “It’s also likely that foreclosures will be concentrated in markets where there’s a dual-trigger—for example, stubbornly high unemployment rates and homeowners who are underwater on their loans.”

This pandemic is far from over. Cases are on the rise, and there is still no date a vaccination will be available to the public. Forbearance upticks are in full swing, and no one knows precisely how the next chapters will look.

However, seasoned investors can continue to research and anticipate the variables that will drive real estate prices in the next few years before making their next move—especially if your goal is to make a profit off the state of flux we’re in. And if it all seems too overwhelming and confusing, return to the basic real estate principle that never fails: location, location, location.

Predictions? Warnings?

Share your thoughts below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.