Updated: Jan 24
The COVID-19 epidemic has affected every aspect of daily activity. It has adversely
impacted a wide range of economic sectors and occupations, especially those which
involve face to face, proximate interaction, collective gatherings, services which need
physical proximity and contact, and economic activities that require collective operations
in close spaces.
The overall economy has taken a significant hit, with the 2020 forecasted GDP slated to
decrease by 3.5%; as of November, there are 8 million fewer people employed than in
the month of February prior to the onslaught of the pandemic; and in the month of
November, there were 14.8 million people who were unable to work because the
employer closed or lost business due to the pandemic, of which 12.7 million did not
Many sectors and occupations have suffered significant decreases in output and
employment, with transportation, personal services, restaurants, hospitality, and tourism
especially adversely affected. On the other hand, a number of economic activities have
seen a major bump in demand and output. The most well-known, of course, is the
information technology sector, which, by definition involves distanced, remote activity,
both individual and collective; companies whose business models rely on online
marketing and provision, e.g., E-Commerce firms; companies active in the remote supply
of entertainment, media and gaming; and of course those that facilitate the entire
infrastructure of online activity, from delivery to distanced learning, to Internet-based
collaborative tools, such as Cisco Webex or Zoom.
Somewhat less known are sectors that have benefited because of specific attributes
related to the spread and impact of coronavirus. The shelter in place policies have
generated a dramatic increase in the “value” and importance of your ultimate refuge -
your home. If most of the activities are now home-based, with a substantial part of the
work that was formerly conducted at offices and workplaces, and shopping done in retail
outlets now launched from home, then the “time value” of housing has surged
significantly, everything else being equal**.
The following charts demonstrate how the housing market has been changing in the
past few quarters during the Covid era. Many of the housing variables that reflect the
The Case Shiller Index underscores the fact that it is not just the usual urban coastal
housing markets, such as the Bay Area and New York, but other urban areas as well
that have surged in 2020.
Google mobility data, gleaned from cell phone locations, provides movement trends and
time spent by geography across different categories of places such as retail and
recreation, groceries and pharmacies, parks, transit stations, workplaces, and
residential. The data shows how the number of visitors to (or time spent in) categorised
places changed compared to the baseline days (before COVID restrictions), i.e., the
median value from the 5-week period Jan 3 – Feb 6, 2020.
The daily data shows that the urban counties of San Francisco, Arlington county outside
Washington, DC, and Queens county, New York City were some of those which had the
highest increase in time spent in residential spaces. The two spikes are in April and
then again in December. There’s been an overall increase ranging between 30 and 40%
over baseline in terms of time and duration spent at home. Unsurprisingly, these are
also the places which have experienced the largest drop in workplace visitations
ranging between 70 and 90%. Indeed, the following chart shows the change in online
work trends from home due to COVID-19 in the US.
The Covid 19 pandemic has impacted housing and mobility in another way as well. There has been an outflux of people from dense central-city environments, which were once attractive because of the many entertainment, cultural, and recreational activities available. Former urban dwellers have headed to the peri-urban, suburban and outlying suburban areas, thereby increasing both rents and housing prices in these markets. A number of former renters in cities have bought housing in these new places. As an example of the impact of urban/suburban mobility and migration, our models demonstrate that while most Bay Area and outer Bay Area housing markets, such as Sacramento moved in tandem in earlier years, in 2020 the downturn in rentals in San Francisco and the upswing in housing market metrics in places like Sacramento has been remarkably different, displaying a strong migratory impact. The following chart shows the results of the survey taken on recent homebuyers during the pandemic.
At the same time, the heightened uncertainty and risk awareness regarding health has
given a fillip to the demand for insurance products. Some surveys show the increase in
anxiety and consumer apprehensions, as can be seen from the following chart****:
While the chart above shows the state of mind from survey results and Internet search
queries provide information about the intentions of consumers, the table below shows
people voting with their wallet. What are the products and services that people have
been spending more money on, particularly relative to previous years?
Data show that there is a correlation between searches for both housing and insurance
products, sanitation products, cleansing and medical preventative products, on the one
hand, and the regions where the coronavirus spread has been particularly devastating.
It’s too early to determine definitively whether risk assessment revisions have led to any
change in insurance premium pricing (except in the case of automobile insurance
premiums, which have been dramatically impacted negatively since driving overall has
been curtailed resulting in lower claims.)
The pandemic has had many direct and indirect impacts on household behavior,
occupations and economic sectors. In this blog we reflect on how the combination of
shelter in place behavior in response to health risks and directives of local authorities,
as well as perception of increased risk and uncertainty have caused the housing and
insurance sectors to surge.
We believe that “the time value” of housing services has increased because of Covid
and the subsequent shelter in place policies; on the other hand, there is increased
perception of risk and perils; your Home is the last refuge in an uncertain world, and
there will continue to be spillover increased demand for products that can be employed
to manage, control, and mitigate risk.
While the Covid era is extending into 2021, we believe that both housing and insurance
markets will display hysteresis, even as the post Covid period emerges; that is, even
after the underlying cause - the Covid epidemic - subsides, many of its impacts will
remain. These impacts might be manifested in pent-up demand for housing, the
willingness of people to spend more on housing, everything else being equal, as well as
heightened desire to purchase insurance and hedge against risk. We believe there will
be a significant burgeoning demand for bundled products that straddle both Housing
and Insurance. At the same time, increased data availability, ubiquitous digitization, AI
augmented risk and pricing models combined with sound financial and economic theory,
and a heightened focus on customer interactions will help develop new kinds of financial
products –new kinds of mortgages bundled with other products, targeted insurance
products and cross-risk applications. These next-generation products will plug gaps in
underserved markets, provide comprehensive security and “peace of mind,” and help a
customer deal with risks to her home, property, family and life.
*https://www.bls.gov/cps/effects-of-the-coronavirus-covid-19-pandemic.htm 2 The American Time Use Survey Data show that an employed person in normal times spent between 13-15 hours in “home related” activity in a 24 hour period. In the Covid era, it should be well over 20, if not close to 24!
** level of activity of the housing market have surged in 2020 relative to 2019. These
include sales, prices, days on market, offers per listing, etc***.
***The lower mortgage rates, designed to keep the economy afloat have also played a part in the increase in homeownership and housing market outcomes.
****Google Trends data show spikes in March to June 2020 for searches relating to anxiety, uncertainty and risk. Also, see https://www.cnbc.com/2020/10/14/life-insurance-sales-increase-due-to-coronavirus-pandemic.html, for accounts of double-digit increases in the number of life insurance policies sold during the Covid-19 pandemic relative to last year.