By Strategic Passive Investments
In February of this year, Nature magazine published an article titled, “The Coronavirus is Here to Stay – Here’s What That Means.” The article was relatively simple: It made the argument that the concept of eradicating COVID-19 was, in the author’s words, a “beautiful dream,” and reported that according to a recent survey of immunologists, infectious-disease researchers, and virologists, nine in 10 of these experts believe the coronavirus will continue circulating in “pockets of the global population for years to come.” Then, the article continued on, explaining why this future is not as bleak as it might sound.
When the terminology associated with a virus shifts from pandemic, meaning an epidemic spread over multiple countries and continents, to endemic, meaning an infection or disease that are a “constant presence” in certain parts of the world, the way we deal with the disease must change. This is not necessarily – as the Nature author pointed out – a bad thing, although of course it would be preferable to “get back to normal” in the United States absent COVID-19 completely. That dream appears less and less likely to become reality, however, in part due to the wildly disparate perceptions of the SARS-CoV-2 coronavirus in the U.S. and partly due to the fact that, like the common cold to which it is related, COVID appears to mutate quickly and effectively while spreading with disastrous ease.
The question then becomes for real estate investors – as for the rest of the country – “What now?” Fortunately for real estate investors, who have always understood the importance of separating emotion from financial strategy, the answer to that question remains relatively straightforward. What we do now is watch the markets, seek opportunities to provide needed housing in our target markets to our target renters or buyers, and work within the confines of the economy and the housing market we have been given to create returns. Easy, right? Well, actually, yes.
Identifying ‘Permanent’ Changes in Market Mentality
Many scientists and economists argue that COVID-19 is already endemic in certain parts of the country, particularly in large metropolitan areas like New York City, which were hit hardest by the virus early on. Critical-care pulmonologist Mangala Narasimhan, who works at the Long Island Jewish Medical Center, told the Wall Street Journal in October that his facility is “seeing it more as a chronic problem than as an immediate, huge pandemic problem like we were before.” Evidence of this indicates that the city was prepared for the summer wave of the “delta variant,” which overwhelmed some regions but left Big Apple intensive care units with beds for other patients who needed them.
“Life in the New York City area might be transitioning into a phase in which the virus is a present but diminished danger for most people,” the WSJ reported in the same article. The author also pointed to NYC as a bellwether for future outbreaks and COVID-related trends, citing experts like infectious-disease epidemiologist and demographer Andrew Noymer. The University of California, Irvine, professor said, “New York and New Jersey are going to be in the U.S. where I would look first for the transition to endemicity.”
As the coronavirus becomes more a part of daily life in the United States, some things are returning to “normal” and some changes are more permanent. The ability to identify these permanent changes and how they affect real estate is integral to investing success. For example, some markets, called “COVID boomtowns,” skyrocketed in value during the lockdowns and shutdowns associated with the pandemic. Now, those markets appear to be softening.
For example, in Boise, Idaho, single-family residential properties appreciated more than 30 percent just since the start of 2021. Just over 80 percent of all current listings in that area have had at least one markdown since they were originally listed, and developers in the area are marking down inventory in order to move it more quickly.
Does that mean the boom is over? Not necessarily, but it does mean investors should use caution when getting involved in that market.
Analysts often argue that the COVID-19 pandemic primarily served as an accelerant for existing market conditions, such as the slowly building urban exodus that suddenly exploded into the past two years’ single-family housing boom in suburbia. However, the advent of remote work and its apparent staying power in many high-earning industries along with the emerging nomenclature of “essential” services, such as shipping and associated logistical sectors, are not simply the result of accelerated or temporarily exaggerated trends. These are permanent shifts in consumer behaviors, and markets that offer outdoor recreation, temperate climates, or access to essential jobs that may also be considered relatively low-risk (think transport more than medical, for example, even though both are classified “essential” in most states), are likely to have a great deal of staying power in the coming years.
How to Spot Endemic COVID (& What to Do About It)
One ongoing question for many investors revolves around whether COVID-19 will be endemic throughout the United States – thereby encompassing most if not all markets and regions – or if it will retain epidemic status or pandemic status in some areas while becoming endemic in others. In all likelihood, because of the varied approach to the pandemic on a state level, it seems most likely that some states will achieve something resembling endemic COVID, wherein infection rates are largely predictable and do not vary much and fluctuate in a predictable manner across multiple years (think flu season), while others may largely eradicate the virus for periods of time only to experience “waves” of it when infections range out of control. Only time will tell investors for certain which areas of the country will achieve which status and, furthermore, which result is better for the overall population, the local and national economies, and the return to “normal” – new or otherwise.
This may all sound very unpredictable, but there are some solid pieces of evidence that certain industries and types of markets as well as political and environmental climates will resist and grow through COVID-19 as we continue to deal with the infectious reality that exists today. For example, markets located in areas of the country where there are year-round temperate climates, good proximity to water (beach or lake), or easy, drivable access to outdoor recreation locations are likely to hold more of their COVID-boom-related price gains than those in colder areas that more isolated or less accessible (note this excludes the private islands purchased en masse by the uber-wealthy over the past 24 months). Similarly, markets where dominant employers appear to be onboard for long-term remote work or where employers offer competitive wages and training for recession- and pandemic-resistant jobs are also likely to hold their own.
Ultimately, there will probably not be an official announcement when the pandemic “ends” – and if there is, it will likely be politically motivated rather than a scientifically generated conclusion. Boston University epidemiologist Eleanor Murray told Vox in October that endemicity is determined largely by when health experts, government bodies, and the public “collectively decide [to] accept the level of impact” of a virus or infection. She cited the flu as an example, which kills between 12,000 and 52,000 Americans each year according to the U.S. Centers for Disease Control and Prevention (CDC).
“What you want to get to is a stage where you don’t have to worry about a disruption because of COVID,” Murray concluded. “The pandemic over when the crises stop.” Real estate investors should take note of this analysis; while investors are not epidemiologists, they can observe market trends and patterns in housing and draw conclusions based on those trends and market volatility about whether the pandemic has become endemic and what that will mean for assets and residents in that area.