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With the pressure cooker of shelter in place adding fuel to the fire in some relationships, it’s no surprise that divorce rates are spiking. They may climb even higher as courts reopen and navigating more complex cases becomes possible once again. What effect, if any, is the heightened divorce rate having on the current real estate market?
Divorces have spiked sharply, and two main demographics have been identified as the most vulnerable: newlyweds, and baby boomers (or gray divorcees.) Divorce generally comes with a splitting of assets, and real estate cannot help but be affected.
The divorce rate in the U.S. had fallen below the 50% threshold of the ‘80s, and settled around 40% as of the start of 2020, mostly thanks to modern family restructuring and the fact that men and women were waiting later to get married; instead of being barely in their twenties, all genders now marry closer to age 30.
However, one specific age demographic saw an uptick in divorce starting nearly ten years ago. Baby boomers suddenly decided that “gray divorce” was acceptable, and seniors started untying the knot at hitherto unknown rates, doubling their divorce rate to the point that one in ten boomers are now divorced.
The real spike in the divorce rate started in 2020, after the coronavirus spurred a lockdown and family members were effectively trapped at home together under mounting stressors. By April, interest in divorce had already increased by 34%, and it’s estimated that this could rise another 10% to 25% by the end of the year.
In the US, newer couples turned out to be the most likely to file for divorce during the pandemic, with numbers of couples who had been married for just five months or less rising from 11% in 2019 to 20% in 2020.
A high rate of divorce can drag down an entire nation’s economy, but when it comes to real estate, it can cause a spike in demand for housing. However, asset values, especially stock portfolios, are exhibiting unprecedented volatility, and real estate valuations are all over the place.
The increase in total households is leading to an impact on both the job and real estate market. While women are increasingly breadwinners, men are still better positioned to buy a new house. However, women may not wish to stay in the former family home, and this can lead to a decision to sell the house and split assets, especially in a seller’s market.
The stock market is also experiencing wild fluctuations, causing havoc during divorces with assets to divide. Between an unstable stock market and a real estate market with historically low interest rates, what is the better asset and how can they be divided equitably?
Divorce completion is being hampered by closed courthouses, and complicated by unstable asset values. Home valuations and stock portfolio performance used to be a major part of how splits in assets could be achieved and a fair property division agreement settled on. Without accurate valuations or prompt hearing dates for property division, divorces can get stuck in limbo.
If a couple reaches a property division agreement, during which the family home was valued at $340,000, and one spouse’s stock portfolio was worth $300,000, both parties might agree to a settlement in which she accepted $40,000 and kept her portfolio while her partner kept the house.
However, by the time the actual property division hearing arrives, the stock market may have tanked, thanks to a COVID-19 bear market. The portfolio is now worth only $250,000, and the spouse cannot come up with $90,000 to make the split of assets equitable. The house may have to be sold instead, which can take time, money, and reduce the value of the asset depending on the market.
The house valuation may also change suddenly, increasing or decreasing based on the region and the current local market. What happens if the house valuation only comes in at $250,000, and there’s still $200,000 on the mortgage note? This could make it hard to sell and come out ahead for either party. This could mean you end up litigating property settlement.
If litigation becomes necessary, significant delays may be ahead due to the COVID-19 pandemic. You may have to agree to online mediation or arbitration to settle on a fair division of property. If you can’t agree. Waiting it out until the real estate market and stock market fluctuations stabilize may be the only course of action.
The combination of grey divorce and coronavirus-divorce- prompted home sales has started slowly increasing real estate inventory. Larger homes are going on the market, as halves of newlywed couples, divorced parents, and seniors looking to downsize are seeking smaller digs to call home.
Condo inventories are growing while sales stay strong. Small multi-family units such as duplexes, triplexes, fourplexes and townhomes are in even more demand, as inventory is low but many seek to buy a palace to live in and bring in income on the side in a roaring rental market with minimal options.
For those with cash to lay out, buying prospective Air-BnB rental units was a real estate trend that was exploding and adding to the already critical lack of residential rentals in major cities. Currently, however, the short-term rental market has tanked, so many of these investment properties are returning to the long-term rental market.
Demand for smaller homes is also up, due to the gray divorcees looking to move into smaller, more affordable housing. Combined with single dad seeking crash pads, smaller houses may be quickly snapped up while larger homes stay on the real estate markets for longer. However, even bigger homes can hold attraction for first-time homebuyers looking at real estate through the lens of historically low mortgage rates.
PUD homes are also likely to see an uptick in the real estate market, as gray divorces lead to boomers seeking the comfort and stress free living afforded by these developments. Less complicated than owning a home, but still far from an assisted living situation, these units can provide a comfortable bridge for seniors who are still independent but want to live more comfortably and not deal with upkeep.
If the divorce trend continues to rise, it’s going to continue to have an impact on the U.S. real estate industry. The influx of boomer buyers and sellers as well as newlyweds potentially getting out from brand new home purchases may help provide stability as inventories and demand rise in tandem. If you’re in a region that is tipping towards being a buyer’s market, now could be the time to apply for a mortgage.
Getting divorced? Need to buy a new home? Sammamish knows how hard it can be to navigate the real estate market during such a challenging time. We’ll help you get through the process and find a home loan that is just right for your current needs.
Sammamish Mortgage has been in business since 1992, and has assisted many home buyers in the Pacific Northwest. If you are looking for mortgage financing in Washington State, we can help. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon and Washington.
Contact us if you have any mortgage-related questions or concerns. If you are ready to move forward, you can view rates, obtain a customized instant rate quote, or apply instantly directly from our website.
Veterans Affairs guaranteed home mortgages are both a salute to and investment in those who have served the U.S. in the armed services. Recognizing the difficulties many returning military men and women suffer as they resume civilian life, the VA makes these loans and offers forbearance during difficult circumstances like COVID-19.
As economies begin to relax COVID-19 restrictions, the real estate business is also enjoying greater freedom to conduct transactions. With housing supplies low and buyer demand high, home seekers must be diligent and patient to find the right property.