A Real Estate Economist on the Effects of COVID-19

Sundae’s resident real estate economist weighs in on the effects of the coronavirus pandemic on housing.

The team at Sundae collectively has hundreds of years of experience in the real estate world. One of the invaluable members of this team is Polina Ryshakov, a real estate economist who is Sundae’s Director of Valuations. We asked Polina 10 questions about how COVID-19 has impacted the housing market, and what it means for the future.

1. How did you get into the real estate business?

After my sophomore year in high school, I found a summer job as a marketing assistant working for Coldwell Banker. I assembled packages for listing presentations and sent milestone letters to sellers saying things like: “Your property has been listed on the market for 60 days. It’s probably time to reduce the listing price.” This was before buyers could browse listings online and before everyone had an email address. I learned a lot in three months, including the idea that “you buy a home, but you sell a house.” Most importantly, I learned about seller and buyer psychology, which is the main driver behind any real estate trend, shift, and transaction.

2. What types of analyses do you focus on now?

I focus on analyzing factors that impact the real estate market such as overall economic health, demographics, interest rates, and government policies.

3. You’ve been a real estate economist for more than 16 years. What is it that continues to hold your interest in this business?

The continuous evolution due to demographic trends, sustainability, urbanization, the financial system, and technological advances. These inputs have a major transformative effect on the real estate industry. Analyzing and forecasting what’s going to happen as a result of a shock to one, another, or all at the same time is interesting and exciting. What we are experiencing right now is an exogenous shock to the system, and while we’ve had many others, this is going to be different from 9/11 or SARS or Spanish Flu because of how much inputs changed.

4. What are the core principles that have helped you be successful in your career?

• Curiosity. Getting to the bottom of everything you do, and being open to ideas keeps you engaged and sharp.
• Sincerity. Acting and speaking honestly. This builds transparent and strong relationships.
• Integrity. This one is the most important. You have to be fair and true to yourself. When the tough times come, no matter how good you are at justifying whatever you do, average issues seem huge and huge issues seem insurmountable. And at the end of the day, the person you have to answer to is yourself.

5. How has the COVID-19 pandemic changed the housing market so far?

COVID -19 paralyzed the real estate market. People who were planning on buying or selling a few months ago are waiting to see what’s going to happen. Flash survey results show sellers expect prices to hold and buyers expect a discount. Recency bias is prevalent in the industry. Market players who remember the pain of 2008 are tightening their lending requirements. JP Morgan Chase recently announced that it will provide new mortgages only to borrowers with FICO scores above 700. The new FHA FICO minimum is 680, well above its previously established floor of 580. These risk-aversion concerns lead to buyers with less than exceptional credit being shut out of the market. That will prolong the process of price discovery. Of course, there are life events — death, divorce, downsizing for retirement — which can force home sales, but even these are on hold right now.

6. What do you think will happen in the long term as a result of the outbreak?

A virtual revolution. Right now, the adaptability on the fly is inspiring. Businesses turned to virtual solutions, and this pandemic will put innovation in high gear. We already see virtual open houses pop up. Digital leasing, rent collection, entirely digital closing in all states. All these are just around the corner. Every industry is getting on board: online telecare, distance learning, even small businesses. My kids are doing Tae Kwon Do, ballroom dancing, and even theater over Zoom. I believe another shift is going to be in making distributed offices and employees more effective, which will drive great advances in virtual reality (VR), where a virtual office brings remote workers into a physical space.

7. What real estate data points or trends related to the pandemic are you focusing on?

I’m looking closely at the demand side. Jobs, incomes, demographics, and financing options are important in determining where things are going. For example, March purchase applications fell 28% but the data was different by demographic cohort. Millennials had a very small drop in mortgage applications year over year. Those who have their jobs and credit in order will continue looking for a house in greater numbers than those who were planning to downsize or move up. Another interesting observation is that millennials are our most educated generation. So far, industries that have been impacted are primarily leisure and hospitality, which don’t require a college degree.

8. How is real estate going to change moving forward?

This outbreak will impact the real estate industry in a number of ways. Employers will realize that employees can be just as productive working from home. In addition to saving on expensive commercial space, companies will have access to larger talent pools. We will likely see different home design and remodeling trends with more demand for home office space inside the house. Open concept plans will have to start featuring easily convertible space for a home office, or we might see a trend toward more compartmentalized homes.

I have seen assumptions that builders will gravitate towards more social-distancing friendly designs for common space, but I am not sure about this one. By the time they find land, complete designs, and file permits, COVID-19 is going to be a distant memory. In the short run, there is likely to be increased demand for single family rentals and suburban neighborhood as they provide more privacy than apartments. But in the long run, optimism is a more sustainable emotion than fear or panic. That’s why expansions last much longer than contractions. So I don’t think people will be making their housing choices expecting another pandemic in the next couple years.

9. How does the pandemic impact Sundae?

At Sundae, we are taking this time to focus on what we can do best once the pandemic is over. Even now, we are still helping distressed sellers. But while the market is paralyzed and people who can afford to wait are waiting, it gives us time to think through how the real estate market might change and transform as a result of COVID-19. We’re looking at which markets are healthiest and what we should be doing to help distressed sellers right now. We’re staying focused on our mission.

10. How are you passing time during the shutdown?

When I’m not homeschooling a kindergartener and second grader, absorbing news and statistics, and trying to work from home as efficiently as possible, my favorite time of the day is early morning while everybody is still asleep. I can put in my AirPods and go for a walk or pedal through scenic routes on my stationary bike, or just enjoy a cup of coffee in perfect silence. But while I don’t have time to learn another language, binge-watch TV shows, or read as much as I would like, having more family time has been nice. My family has probably spent more time in the last month playing board games, cooking together, and daydreaming about vacations than we have in all the past few years combined. The kids are calling this a Coronacation. I’m sure they will remember it very differently than I will.