A once-in-a-century pandemic may seem like the extreme opposite of what might fuel a housing boom -nevertheless, it’s certainly what we have seen over the past few months. The question is, what is causing this fire in the real estate market, and will it continue to burn?
Homebuyers and homeowners are savoring some of the lowest mortgage rates in history, as the 30-year fixed-rate mortgage hit new blazing record lows eight times this year alone. Without the Federal Reserve doing anything further to flame the fire, mortgage rates seem to have bottomed. The Fed has been on a very consistent bond-buying regiment for the past few months, and they make no indication of a change to this policy in the future. In fact, their recent announcement to let inflation run hotter than previous levels confirms they are ok with long-term rates rising.
Robert Dietz, chief economist of the National Association of Homebuilders (NAHB) said it best – “the virus itself is creating a competitive disadvantage for residences that require an elevator or utilize a great deal of common space.” He says, “the shift is already becoming apparent with rents declining in high-density, low-affordability markets like New York and San Francisco.” As indicated by NAHB’s Home Building Geography Index (HBGI), the declining demand for urban rentals may be hastening the expansion of home construction in low-density markets.
With businesses and companies forced to change their in-person requirements and to accommodate telework, many Americans began working remotely from home for the first time in their careers. Working without a designated workspace can be challenging enough, but when you’re competing with family and pets for room, apartment living can get very crowded. Now that companies across the nation have implemented remote work policies indefinitely, many realize that they are no longer geographically tethered to their employer’s address.
The fear of missing out (“FOMO”) of homes on the market has caused a fiery competition for any home listed for sale. According to the latest CoreLogic report, National home prices increased another 5.9% year over year while homes for sale (“inventory”) has dropped another 17% year-over-year. There is simply a limited supply of options for those looking to move. This FOMO is causing bidding wars and blazing home prices, given the current demand.
Reevaluating Life Priorities
The concept of “home” took on a greater worth at the outbreak of the coronavirus as people began to shelter-in-place and reevaluated the things they hold dear. City dwellers have been flocking to the suburbs to exchange their small apartments for houses with fences and lawns. Renters who were forced to rent close to work have been returning to their hometowns to buy homes closer to loved ones who still live in the area.
Driven by low mortgage rates, increased teleworking, and changing priorities, residential real estate has been on fire since April; however, many industry leaders are starting to see a shift. The emergency calls with urgent requests for “above-ask” pre-approvals are gradually starting to decrease. The late-night calls for advice regarding bidding-wars and higher than listing price offers are beginning to slow down. The 24/6 haste to capitalize on the historically low interest rates are starting to stabilize. What will this mean for the housing market? It’s anyone’s guess, but the intensity in the market is undoubtedly beginning to simmer.
Shout out and Happy Birthday to Amanda Abbou, Efrona Hagler, Tamar Hochstein, Cassie Lukasiewicz, Etan Mirwis, Sylvia Nachtigal, Karen Seliger, and Arun Thomas,
Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Approved Funding is a mortgage company offering competitive interest rates as well as specialty niche programs on all types of Residential and Commercial properties. Shmuel has over 20 years of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. He can be reached via email at [email protected]