NEW YORK, USA – SEPTEMBER 28: The U.S flag half-staff on Brooklyn Bridge in New York City, United … [+]
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Reports of the death of cities is much exaggerated.
Yes, it is true that New York City and other major metropolitan areas have seen some problems lately, but overall it may be more of a media circus than reality, according to a recent research report fromUK-based bank Barclays.
In fact house prices are rising across the board.
“Despite widely reported speculation about a collapse in demand for urban living, property prices have risen across the US during the pandemic in each of rural, suburban, AND urban areas,” the report states.
Urban and Suburban Housing Markets Doing Well
Or put another way, the U.S. is seeing a housing boom in both urban and non-urban areas.
Most importantly, any flight from urban areas isn’t likely to be permanent. The report explains as follows:
- “COVID-19 has not caused people’s housing preferences to permanently shift away from the amenities of urban living. Density aversion is leading to some declines in the biggest cities. But price changes during COVID-19 suggest that people are still willing to pay for urban amenities, placing value on access to restaurants, bars, and cultural institutions found in denser cities […]”
There has been some flight from New York and San Francisco the report states. However, the problems those two cities have been apparent long before COVID.
For instance, New York was seeing an increase in homelessness and streets filled with drug addicts as recently as five years ago. I know I lived there.
Separately, friends who live in San Francisco have complained about the management of the city for a long time before COVID-19. The pandemic may have been the final straw for some people who were already thinking of leaving for suburbia or smaller cities than either New York of San Francisco.
Outlook for Housing Positive
Meanwhile, the outlook for the property market, is positive, according to Barclays. Or at least as positive as it could be with the tens of millions of people unemployed. The report explains:
- “We expect the trend of rising home prices in both cities and suburbs to persist even after the pandemic ends, because affordability has improved and should remain elevated for some time.”
That buoyant outlook is in part due to ultra-low interest rates making housing payments more affordable, as well as the jump in the savings rate during the pandemic-related lockdown. Then there is also the fact that Generation Y (millennials) are now mainly of an age when people buy homes, the report explains. All of which means there’ll be a lot of buyers looking for housing of all types.
How to Invest for a Housing Boom?
So how should investors take this news? Consider buying home buiding stocks such as those held in the SPDR S&P Homebuilders exchange-traded fund. The fund is up 75% over the past six months, which is more than twice as much as the S&P 500, according to Yahoo data. Neither figure includes dividends.
Better still, the outlook could improve further as the unemployment rate drops when the economy starts to hit full capacity again. At that point, expect a real housing boom.