The renewed plunge into coronavirus disruptions—this time by the omicron variant—increases the difficulty of separating temporary from longer-term changes to the U.S. economy.
Economic disruptions often accelerate trends that had already been brewing under the surface. On-line shopping, remote working and learning, and the reordering of life-work priorities aren’t new phenomena, but the pandemic shifted them to the front burner. Throw in the failures of overseas and domestic supply chains, the gutting of local government finances, the exposure of our expensive hospital and college systems, and it’s almost impossible to know how real estate markets will be affected.
One thing that does seem certain is that we need to reset the baseline from which local markets should be assessed. Enough time and disruption have passed for us to conclude that some markets have lost a bunch of jobs for good—and will have lower demand for housing—while others have recovered the jobs they initially lost and are poised for good economic growth in the next year and higher demand for housing.
Lower or higher demand for housing is neither good nor bad. It just means the investment options are different. Lower demand can produce very good returns because it usually means a shift toward more renting in a market where home prices are cheap relative to rents. Markets with higher demand leave more room for error but also must contend with rising home prices, especially right now.
The accompanying table lists 10 lower-demand and 10 higher-demand markets investors should consider. Despite the recent surge in home prices, none of these markets are (yet) overpriced, and the ratio of average home price to annual rent (although 26 is on the high side) indicates you can still buy a single-family home and rent it out unaltered.
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