Recovering from a 100-year black swan event in 2021
By Patrick Duffy
A year ago, I wrote about potential “black swan” events keeping global forecasters awake at night, just weeks before the COVID-19 virus began its relentless march across the globe. No one knows the specifics of these black swan events in advance, which is why being well-prepared for almost any eventuality is certainly the best defense. Moreover, some would argue that the pandemic event of 2020 was more of a “grey rhino,” in which you can actually see what’s barreling towards you, but are simply too slow or ineffectual to get out of the way.
Whether the swan or the rhino, what we got last year was a 100-year global event which has accelerated the roll-out and adoption of technologies potentially impacting multiple land uses, upended entire sectors of the economy, and turbocharged a housing market ready to take advantage of favorable demographics, low interest rates and pent-up demand. So which trends will continue in 2021, and which will fizzle out?
For technology, according to a study by McKinsey & Company, the forced remote lifestyle compressed five years’ worth of business and consumer adoption into just eight weeks. Depending on how permanent these changes are, they could upend everything from the investment values of office buildings to how cities manage their finances.
The changes to the retail sector were even more rapid, with the adoption of online shopping compressing ten years’ growth into three months, thereby creating even more pressure on many traditional retailers to adapt or perish. However, this sped-up digital adoption has also jump-started changes in more resistant fields such as health and education, including a greater acceptance of online learning and remote work.
Although many of these new behaviors will wane after the pandemic has passed, some will remain, and others will lead to a hybrid model which could impact commuting patterns, property prices and even how cities make decisions regarding land uses which impact their tax bases.
For a housing market already seeing a boom, the roll-out of vaccines in 2021 could help sellers become more comfortable with listing their homes for sale and hosting open houses, thereby adding more inventory to a supply-constrained marketplace and slowing down rapid price appreciation. Indeed, according to the NAR, November’s median sales price for existing homes rose 14.6% year-over-year to a new high of $310,800, while months of inventory shrank to a record low of just 2.3 months. But the combination of low inventory and rising prices also put to a halt to sales levels, which fell for the first time in five months, even though they were still up 26% year-over-year.
For the new home market, sales of single-family homes have been steadily dropping since the most recent peak of 979,000 units in July, but were still up by nearly 21% in November versus the same month of 2019 to an annual rate of 841,000. The slowing of sales also helped increase November’s months of supply to 4.1 months, which was up by 14% from the timeline of the previous two months, but still down 27% from that of a year before.
The nation’s builders, remaining highly confident with a rating of 86 in December on NAHB’s Housing Market Index, pushed November housing starts up 13% year-over-year to over 1.5 million units to meet persistent demand, but they still face some headwinds including shortages in skilled labor, materials and developable land.
While the growing acceptance of remote work will certainly benefit real estate markets once considered to be outlying suburbs or even prime vacation destinations, recent studies have shown that fewer than 40% of workers can actually take advantage of this lifestyle. Consequently, the oft-discussed escape from the cities may be premature, especially if urban areas can gradually reopen surviving event venues, bars and restaurants safely. With the millennial generation increasingly reaching their prime home buying years, they’ll certainly tell us their preferences in terms of location, home size, bedroom count and amenities in 2021, while the Generation Z tailing them will offer insights into the potential duration of the societal changes highlighted in 2020.
For now, however, the country’s economic future remains dependent on more short-term fiscal relief to shore up personal and business finances until the spring, a successful deployment of vaccines through the fall, and a longer-term recovery for those sectors hit hardest by pandemic-related shutdowns.
For now, however, the country’s economic future remains dependent on more short-term fiscal relief to shore up personal and business finances until the spring, a successful deployment of vaccines through the fall, and a longer-term recovery for those sectors hit hardest by pandemic-related shutdowns. A year from now, we’ll have a much better read on the long-term impacts of COVID-19, including which accelerated changes are here to stay.
Patrick Duffy is a Principal with MetroIntelligence and contributes to BuilderBytes. He can be reached at email@example.com or at 310-666-8288.