Wealth Morning, a global think tank, has revealed that the COVID-19 pandemic is creating a positive effect for housing investment in the United States, as well as a new wealth trend.
The raw numbers don’t lie: the second quarter of 2020 saw American GDP fall by nearly a third on an annualized basis. Unemployment also approached 15%.
However, despite this economic shock, the property market is defying the gloom and continues to display encouraging numbers.
Simon Angelo, global analyst and chief executive at Wealth Morning, has studied this financial trend closely. He notes that the median home price in the United States has surged in July to $304,100.
“It’s up 8.5% from last year,” Simon says. “Home prices have exceeded $300,000 for the first time ever. It’s a new record.”
Lennar Corporation [NYSE:LEN], America’s second-largest homebuilder by market capitalization, has reported 16% more orders in Q3 compared to the same quarter a year ago.
So why is this homebuilding boom happening now? What’s driving it?
There are three key factors:
- Behavioral change and pent-up demand from COVID is driving demand for more space and home offices.
- The Federal Reserve has increased quantitative easing.
- Interest rates have fallen to record lows.
This stimulus has had a direct impact on the perceived value of cash and savings.
For the wealthy, it no longer makes sense for them to allow their funds to passively erode in a bank account. They are taking urgent action to invest in assets like rental housing.
In addition, investors are now finding renewed opportunity in retail and commercial property businesses. They are taking advantage of COVID fears to buy into listed companies that offer long-term value and growth.
Simon says, “Certain company stock market valuations saw discounts on the book value of their properties of 40% or more. In the open market, it would be near impossible to buy land and buildings at these sorts of discounts.”
Many longer-term investors able to withstand the current pain believe that brick-and-mortar assets on Main Street should eventually recover. Investors are looking forward to a post-COVID future, and they are hedging their bets accordingly.
However, there could be a dark side to this trend. A widening asset gap may be emerging, which is creating a top-heavy wealth pyramid.
Simon explains, “Of course, one issue is that these conditions allow the wealthier to get wealthier as they accumulate property and stocks. Overall rates of home ownership could actually decrease. This might create a gilded situation like in the 1930s, where there were hazardous levels of inequality.”
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