Homeownership is increasing during the COVID-19 recession: Here’s why

The Great Recession turned America into a nation of renters, but the COVID-19 Recession is moving the pendulum firmly back towards homeownership.

Prior to the COVID-19 pandemic, if you asked the average American where they fell on the rent-or-buy decision, you might hear a lot of solid reasons for renting.

Millennials — also known as the job-hopping generation — might have said they value the flexibility and freedom of a year-long lease. Gen Xers, a group hit hard by the Great Recession, viewed renting as more affordable. According to a 2018 Freddie Mac study, 31% of Gen Xers who were renting said they did not anticipate buying a home in the future.

While baby boomers have greater wealth than younger generations, they also have more divorce — ‘gray divorce’ more than doubled in 2017, leading many boomers to swap the family home for a sleek urban apartment in a luxury rental building.

Challenging the previous bias toward homeownership, in 2017 more U.S. households were renting than at any point in the last 50 years, according to a Pew Research Center study. Initially a byproduct of the housing crisis that drove the Great Recession, almost a quarter of the 100 largest U.S. cities changed from homeowner- to renter-majority between 2006 and 2016.

But even among those who could afford to buy a home, renting became popular, and a new breed of high-income renters began to emerge in metropolitan areas across the country.

But almost overnight, that demand has shifted, and renting — especially in luxury high-rise rental buildings with shared amenities —has started to lose its luster. Health concerns, social unrest and lockdowns have made the idea of downtown luxury rental living less attractive and seemingly more expensive.

The data is increasingly clear: The coronavirus pandemic has effectively moved the rent-versus-buy decision back toward homeownership.

According to a July report from the National Association of Realtors, homeownership rates across the country increased during the pandemic — up to 67.9% in the second quarter from 64.1% a year ago— as Americans rushed to take advantage of low interest rates and opt out of renting. Millennials aged 35 to 44 saw the highest gains in homeownership, increasing 4.9 percentage points to 64.3%.

As a result, existing-home sales rose to new heights in September, climbing 20.9% from a year earlier, marking the fourth consecutive month of increases.

“Home sales traditionally taper off toward the end of the year, but in September they surged beyond what we normally see during this season,” said NAR chief economist Lawrence Yun in a press release. “I would attribute this jump to record-low interest rates and an abundance of buyers in the marketplace, including buyers of vacation homes given the greater flexibility to work from home.”

Not everyone is looking to migrate to a warmer climate — for many, the decision to buy is being driven by a need for more space to accommodate home offices, distance learning and lives increasingly led at home.

“The big trend right now is people are moving to the suburbs to get more space, although another set of buyers swapping out their condos for single-family homes,” said Compass Agent Michael Giliano. “Overall, buyers are looking for a real office, sometimes two dedicated offices, so their worlds are not colliding. If they have kids, they also need space for them to do their schoolwork, play and go outside.”

According to Giliano, having room to work away from other household activities helps families control their stress and maintain a sense of normalcy as they learn to live with the pandemic.

While making a major financial decision like buying a house might seem risky during these uncertain times, owning a tangible asset like a home is considered less volatile and safer than investing in the stock market.

In a recent marketplace.org article, Wharton School real estate finance professor Susan Wachter called homeownership “a piggy bank like none other at this moment in time.”

The latest Home Equity Report from global analytics firm CoreLogic bears that out, as homeowners’ balance sheets continue to be bolstered by home price appreciation. In the second quarter of 2020, American homeowners saw their equity rise by an average of 6.6% from the previous year.

While owning a home means committing to staying in one place for a while, pandemic lockdowns and travel bans have made that sound appealing.

According to First American chief economist Mark Fleming, being confined indoors has given us a new realization about the significance of owning a roof over our heads during uncertain times.

“As we navigate the unprecedented impact of COVID-19, ‘home’ has taken on added significance and there are signs that homeownership remains one of the main tenants of the American Dream,” Fleming said.

More than 40% of Americans hesitant to move to areas where they’d be in the political minority

With the election upon us and amid an increasingly politically polarized country, a new study conducted by technology brokerage Redfin shows that an increasing number of Americans are letting their politics determine where they want to live.

According to the survey, which polled more than 3,000 U.S. residents in October, 42% of respondents would be hesitant to move to an area where most people have political views different from their own, up from 32% in June. That’s the highest share since 2017, when Redfin began posing this question to survey respondents.

The share of people who are hesitant to relocate to an area where they’d be in the racial, ethnic or religious minority also increased, from 20% in June up to 28%.

“With political signs lining the front yards of homes across America, house hunters can’t escape the political views of their prospective neighbors,” said Redfin Chief Economist Daryl Fairweather in the report.

When broken down by who respondents intend to vote for in the 2020 U.S. presidential election, Donald Trump voters and Joe Biden voters were equally as likely to express skepticism about moving to a place where they’d be in the political minority. Forty-five percent of participants who indicated that they plan to vote for Biden and 45% of participants who indicated that they plan to vote for Trump said that they would be hesitant to move to a place where most residents have different political views.

Trump voters were most likely to express concerns about relocating to an area where a majority of people look or pray differently. A third (36%) of survey participants who indicated that they plan to vote for Trump said that they would be hesitant to move to a place where most residents are of a different race, ethnicity or religion.

About a quarter (23%) of participants who indicated that they plan to vote for Biden felt the same way.

When broken down by race, 29% of white respondents said they would be hesitant to move to a place where most residents are of a different race, ethnicity or religion. That compares with 26% of both Black and Hispanic respondents, and 23% of Asian participants.

Meanwhile, in another recent survey conducted by Redfin, 16% of Americans said they would consider leaving the country if the presidential candidate they support loses the election. That’s up from 9% of Americans who said the same thing in 2016.

Broken down by political preferences, 20% of people who plan to vote for Joe Biden would consider leaving the country if he loses, while 15% of President Trump’s supporters said the same thing. 

“The desire to leave the country due to political dissatisfaction is relatable for people on both sides of the aisle, but most people who say they would consider it likely won’t follow through given the financial and legal barriers,” Fairweather said in the report. “Still, the uptick in the share of people who say they would consider leaving the country since the 2016 election is one sign that the nation has become more politically divided.”

Twenty-four percent of respondents in that study also said they would want to move to a different state if the Supreme Court increases states’ rights with respect to health care, reproductive laws, gun laws, etc.

Nearly 40% of Trump voters who live in blue states said they would likely move if the Supreme Court were to increase states’ rights while 24% of Biden voters who live in red states felt the same way.

An increase in states’ rights could make choosing which state to live in more significant because the laws from state to state would differ more than they do now, the report noted.

“Homebuyers could ‘vote with their feet’ and relocate out of a state if their laws change in a way that is misaligned with their values,” Fairweather said. “Businesses may also move for the same reason, or to follow the talent, which would impact local economies.”

Politics aside, the pandemic is already driving migration, as remote work has given many Americans the freedom to relocate.

According to Redfin, nearly 29% of users were looking to move to another metro area in July and August, the highest share since the company began tracking migration patterns.