The COVID-19 virus and resulting pandemic have had a large impact on virtually all aspects of life, including the Columbia residential and commercial real estate markets. Residential home sales were doing well before the pandemic during the first quarter of 2020, but everything came to a standstill when lockdowns were imposed. Once restrictions lifted, sales took off. Even with the lockdown, total sales in Columbia for 2020 were up 2.9 percent, and December sales were up 14.8 percent from December 2019. Nationally, home sales reached their highest level in 14 years. It seems counterintuitive that sales would go up in the middle of a once-in-a-century pandemic, but several factors came into play to create just the right environment for a hot real estate market.
Joesph “Joey” Von Nessen, Ph.D., research economist at the University of South Carolina, cites three reasons for this. The first is stable employment. Outside of the leisure and hospitality industries, employment is down, on average, only about 1 percent from pre-pandemic levels. In South Carolina, leisure and hospitality employment is down 17 percent. The travel industry is also primarily concentrated along the coast and not in Columbia. The average salary in the leisure and hospitality sector is much lower than other sectors, and as a result, most employees in that industry are renters and not buyers. Real estate agents have not seen a downturn in their customer base.
The second reason Joey says that real estate sales have done so well is that migration patterns favor Columbia. “The unique circumstances created by the pandemic accelerated in-migration to Columbia — and to the state as a whole — primarily from the northeastern United States,” he says. Columbia’s low cost of living combined with much lower average home prices than in the Northeast were significant drivers for people making a permanent move into the area. Also, remote working has taken on a new legitimacy, allowing many to contemplate and act upon a move to other areas of the country, including Columbia.
The third reason for the uptick in the Columbia real estate market is governmental policy changes that have provided low interest rates and stimulus payments. In 2019, interest rates fluctuated around 4 to 4.5 percent, but in 2020, rates dropped to the 3 percent range. Stimulus payments to individuals and small businesses have put more disposable income into people’s hands as well driving up demand. While demand is up, supply has been limited.
“COVID-19 has changed the way of doing business,” says Morris Lyles, SC REALTORS 2021 president. “The pandemic has created a sales environment where safety and sanitation are critical. Using masks, sanitizer, checking clients for fever, and keeping a social distance is standard procedure. Also, the use of videos, FaceTime, and email has greatly influenced and has become a greater part of the sales process.”
While the pandemic has increased demand, it has also decreased supply. “Many were reluctant to put their homes on the market due to the fear of contracting the virus from people walking through,” says Morris. Lack of supply also keeps people out of the market because although they could rapidly sell their home, finding another to move to is problematic. In the month of December, homes for sale inventory was down 38.3 percent compared to December 2019 (SC REALTORS report).
Listings, however, were still up as a result of more new homes being built. “Whereas new home sales usually account for 20 to 25 percent of all home sales in a normal year, in 2020 they accounted for 35 to 40 percent,” says Joey.
An example of this, according to Morris, occurred in Northeast Columbia. “Building permits were up. In 2019, 455 new homes were sold and in 2020, 547. This area also saw an average price increase of 6 percent,” he says. Columbia in general saw an 8.7 percent increase in median sales price from $229,900 in 2019 to $249,000 in 2020, according to a report from SC REALTORS.
Joey predicts 2021 should be a recovery year for the economy with full employment recovery being possible by the end of the third quarter. Of course, all is dependent upon the distribution of the vaccines throughout the population. Optimistically, the recovery will happen sooner with the leisure and hospitality industries rebounding in late spring and early summer. Low supply and high demand in the Columbia real estate market is expected to continue, and total sales are expected to flatten out. The economy will receive continued stimulation from the government’s $1.9 trillion recovery relief plan and the Federal Reserve’s commitment to keep interest rates low.
The commercial real estate market has also been strongly affected by the 2020 COVID-19 pandemic. While the office market paused as companies shifted to remote work, industrial demand has accelerated as has land development for any type of residential and multifamily development. The retail sector is the one commercial property type that will continue to evolve as long as the pandemic continues but is anticipated to return strong in a post pandemic era.
The year 2020 will be remembered as a bizarre and troubling one in many respects. The effects from a highly contagious and lethal virus have disrupted normal life patterns, including the local residential and commercial real estate markets. Surprisingly, the markets have been strong, and the near future looks promising as well. Long term this may lead to overbuilding and/or higher inflation, but no one knows for sure. Certainly no one predicted the strange year of 2020.