First-time home buyers Stuyve Pierrepont and his wife said they have seen this shift occur almost overnight.
The Pierreponts, who work in the District and previously rented in Northern Virginia, renewed their 18-month home search in early 2020. Prior to the viral outbreak, the couple looked at roughly a dozen homes. During the pandemic, they only saw four residences in person. But the couple wasn’t ready for the speed with which fellow home shoppers were scooping those houses off the market.
“It’s a seller’s market,” said Pierrepont, a finance professional who runs a blog about leading an environmentally conscious lifestyle. “We were back and forth on whether timing was right to buy a home, given everything that’s happening. The big surprise was that the markets we were considering didn’t slow down at all.”
The couple toured a house in Annapolis, Md., for example, which went under contract later the same day. “There were a couple of times when we saw places we really wanted, and they sold before we could act,” Pierrepont said. “We were really discouraged by that fact.”
Their real estate agent, Shane Hall of the Shane Hall Group, newly associated with Compass and formerly with TTR Sotheby’s, said in late June that Annapolis, which lies less than an hour east of the District, had a single month of supply, meaning that if no new listings were to come on the market, all existing stock would be purchased in 30 days.
“That’s incredibly rare,” Hall said. “We just don’t have a ton of inventory. And we have a lot of demand.”
Impact of mortgage rates
With the country’s economy tentatively reopening and shelter-in-place restrictions easing, housing experts forecast that home sales will rise through the summer. The biggest constraint is the number of listings, which are returning to the market only gingerly compared to the appetite for them.
The latter is in part whetted by historically low mortgage rates that are now hovering at 3.03 percent, about 2 percentage points below their level about a mere 18 months ago and where they are expected to remain this year. Annualized new mortgage applications have trended up for weeks.
“Today’s low mortgage rates are a true game changer,” said Ali Wolf, chief economist at Meyers Research, a new-home data and consulting firm. “As the economy reopens, it comes down to four words: fear of missing out.”
Home buyers’ vigor has powered the national housing market, despite declines in mostly all economic indicators. For the most part, home showings — enhanced with hand sanitizer and face masks — have continued throughout the pandemic. The various services supporting the industry, from inspections to closings, have shifted to alternative modes such as the Internet, staying operational. And with the start of summer, home shoppers’ desire to make what is probably the largest financial commitment in their lives — in such an uncharted time — hasn’t seemed to slacken.
“If anything, that seems to be a ray of sunlight: We’re seeing buyers more active than expected,” said George Ratiu, senior economist with listing website Realtor.com. “Looking at our weekly inventory statistics, we’re seeing that total listings are down partly because new listings are down. But [also because] those homes that are on the market are clearly finding buyers quickly and that’s key.”
For instance, in the Tampa area in Florida, which has seen an influx of buyers from the Northeast because of the pandemic, active upscale inventory through June 23 was 26 percent lower than a year ago, said Jennifer Zales, luxury real estate agent with Coldwell Banker. At the same time, however, completed sales of homes above $1 million totaled 109, or three more than for the whole of June 2019, Zales said. Meanwhile, a little over 230 residences asking $1 million and up, including condos, townhouses and single-family houses, were under contract.
“We have a lot of pent-up demand from the spring season that did not happen,” Zales said. “I feel like somebody took my regular summer season, which is usually very regular, but dumps the whole spring season on top of the summer season. We’re extremely busy.”
This appears to be the latest recurring theme across the United States, even if the summer months traditionally are calmer with vacations and family activities stealing the focus from buying or selling a house. Beyond the next couple of months, angst about the fall, when the uncertainty of the presidential election mixes with a still-wobbly economic outlook and fears of a second wave of coronavirus infections, still permeates forecasts.
Sellers remain cautious
When the pandemic seized the country, sellers retreated faster and in larger numbers than buyers, prompting the nationwide inventory of homes to dip precipitously. After somewhat recovering from an all-time low in April, new listings remained about 22 percent below their level from a year ago in May, according to real estate brokerage Redfin.
This has not only exacerbated the chronic shortage of homes for sale, it has done so during the months when sellers are typically most engaged. A forecast by Realtor.com indicated the loss of spring inventory would translate to 15 percent fewer sales of existing homes in 2020.
“I think people are prepared to stay in their houses longer,” said Hall. “That was already a trend that’s been going on for the last five to 10 years.”
Despite a market tipped in their favor, sellers, especially those who still live in their residences, remain reluctant about letting strangers in. Increasing coronavirus infection rates in some states might strengthen this disinclination.
Moreover, home sellers are often also shoppers. Those not pressed to move might be loath to search for their next home amid tight inventory and rising competition. “It is now amazing to sell,” said Hall. “It is not amazing to buy.”
Yet Katie Day, a Houston-based real estate agent with Coldwell Banker, said she expects more homeowners to enter the market later this year to finally chase the housing aesthetics the pandemic has advanced as priorities.
“Probably toward the latter part of this year and into 2021, we will see more preference changes with people wanting to have a bigger home or wanting additional amenities in their house,” Day said.
Day’s remarks align with Realtor.com’s projection of a gradual increase of new listings through August before their numbers again hit the “historical trend” from September through December, when fewer homeowners generally decide to sell.
Appeal of new construction
Because of the restricted supply of existing homes for sale, some buyers have flocked to new construction, especially single-family houses that, unlike their pre-owned counterparts that have been occupied, pose less risk associated with the coronavirus — and are more customizable.
Sales of newly built houses rose nearly 13 percent year-over-year in May, growing at a rate for that month not seen in more than a decade, according to the Census Bureau.
“There are just so few homes on the market today compared to last year, and last year already had historically low inventory levels,” said Wolf. “So, builders have been capturing market share left and right, selling homes at record May levels.”
This positive dynamic, though, might not alleviate the overall shortage of inventory. For years, builders have strained to build homes fast enough to meet demand. And, Wolf said, many of them have already sold their standing inventory in 2020. The Census Bureau’s data shows that most contracts in May were inked for houses under construction.
Meanwhile, new permits and housing starts in May continued to lag year-over-year, which could reflect builders’ sustained struggles in filling construction jobs and acquiring materials.
“The home supply shortage as the economy opens up is going to be even more severe,” Wolf said, “unless we all of a sudden see more existing homeowners put their homes on the market.”
Prices are rising
The pronounced seller’s market has buoyed home values, contrary to early expectations of deflated prices resulting from a coronavirus-chilled real estate industry.
“We’re going to have this really surprising situation where, even though demand has certainly been impacted by the much weaker job market, supply has fallen even more,” said Mike Fratantoni, chief economist of the Mortgage Bankers Association. “Prices, as a result, are going up at the time that we’re in, in this very deep crisis.”
In May, the median price for all existing home types notched up 2.3 percent to $284,600, marking 99 straight months of yearly gains, the NAR reported. According to Realtor.com, in the third week of June, median asking prices grew at an annual rate of 5.6 percent, surpassing their pre-coronavirus pace.
“The increase in prices is fairly universal across most markets,” said Ratiu.
But not all cities have experienced price spikes.
A viral hot spot for months, New York City, for instance, saw the median sale price in its spiffiest borough, Manhattan, decrease about 18 percent in the second quarter, the largest annual slump in a decade, according to a joint report by real estate brokerage Douglas Elliman and real estate appraisal and consulting firm Miller Samuel.
In fact, median asking prices in May fell in all five boroughs, with the highest drop approximately 5 percent in Manhattan, according to Realtor.com.
The deflated home values rest on the backdrop of record low sales, which were a mere half of their year-ago number of 2,730. This is the most pronounced decline in 30 years of record-keeping.
The real estate industry in the city, though, only formally reopened in the second half of June with agents optimistic about a slow but steady recovery and even a silver lining for some home shoppers.
“For people who have been trying to move to Manhattan for a while and felt it’s so expensive, there’s some opportunity now for them to buy something they can afford,” said broker Lisa K. Lippman with Brown Harris Stevens.
Pace of sales quickens
Betsey Rider, who works in luxury goods sales and lives in Annapolis, and her husband, who is retiring this December, readied to sell their four-bedroom house, rebuilt a decade ago, later this year so they could move to a warmer climate.
But in the early days of the pandemic outbreak, three homes in their neighborhood of about 250 residences came on the market — and didn’t stay long.
“They sold within days,” Rider said. “I was shocked by that. At first, I found it really interesting that people were still house hunting.”
To tap the current demand and to evade any uncertainties down the road, the Riders decided to list the property. In early May they met with Hall, the Annapolis-based real estate agent, on a Saturday to discuss selling. The next day, having already tapped his industry network, Hall called to say that there were buyers from Texas interested in the home. That Monday, after a day of cleaning, the Riders showed their still-unlisted residence via a video phone call.
The offer followed quickly, a little under the $850,000 the Riders were going to ask. They accepted.
“We were happy with the price and the fact that we never had to list the house and go through all of [that process],” Betsey Rider said. “There were a few things that we were going to do prior to putting the house on the market that we ended up not having to do.”
The sale was completed in late June, after the Riders had already settled in a temporary rental before moving South.
According to the NAR, nearly 60 percent of the homes sold in May found new owners in less than a month. While Realtor.com reported slightly longer lead times, the company anticipates those spans to shrink as home buyers pick up the pace of making offers in competitive markets.
The Pierreponts, the first-time house hunters in the Washington area, experienced that quick tempo first-hand. After several homes they liked vanished to other fast-to-act shoppers, the couple in early June made a successful offer on a house in Deale, Md., about 30 miles east of the District, that had been for sale for a week. Asking $610,000, the residence sits on 1.7 acres and features a chicken coop, enough for the micro garden and farm the couple had dreamed of. The Pierreponts planned to close on the property on Saturday.
“We will still be able to work in Washington, D.C., and follow a career path,” Pierrepont said. “It gave us the best of both worlds in that sense. A longer commute is a small price to pay for having more usable land.”
Rise of smaller markets
The Pierreponts are among the many buyers who are leaving cities for the suburbs, secondary metropolitan and rural areas. While this exodus underlines Americans’ search for privacy amid the health crisis, it is in large part enabled by the rapid adoption of work-from-home arrangements that a number of companies have said would last beyond the pandemic.
“I believe that this is a permanent change,” said Lawrence Yun, chief economist with the NAR, about the movement to the suburbs and away from densely populated hubs.
Redfin found that a record 27 percent of searchers on its website in April and May looked to relocate, mainly to small towns from large cities.
For instance, New Yorkers have flocked to Florida and Southern California, where properties are generally larger and cheaper. Yet even local buyers in these states are searching for bigger, more remote homes.
“Even though Los Angeles is not a dense city compared to the vertical city that is New York, our local wealthy people are trying to get out to Laguna, Santa Barbara, Malibu, even Palm Springs,” said Ernie Carswell, luxury real estate agent with Douglas Elliman. “They’re buying beach homes. They’re moving farther from our populated areas.”
Cities such as Austin, Indianapolis and Des Moines are welcoming out-of-state home shoppers. Even second-home enclaves and resort towns like Aspen, Colo., are experiencing heightened demand.
“What we are seeing now is a huge uptick [in interest] in properties that are more rural and away from Aspen,” said Raifie Bass, real estate agent with Douglas Elliman. “So a farm or a ranch or a gentleman’s ranch properties that have a little bit more space. That market is stronger than it’s ever been. We’re seeing full-price offers on properties that have been on the market for a long time.”
Suburban and small-town markets are typically cheaper, but Ratiu said the ballooning interest in them would likely push prices up.
While the U.S. housing market is entering an invigorated summer season, characterized by low mortgage rates, rising home values and steep competition among home shoppers, uncertainty still shrouds the outlook for late 2020.
Even if some predictions point to a V-shaped coronavirus recovery, some forecasts, including Realtor.com’s, say the rebound would actually look like a W. Home selling and purchasing naturally slow down during the colder months, but factors such as a rise in new coronavirus cases and prolonged unemployment would exacerbate any seasonal declines — and soften home values.
“One of my biggest concerns is a second outbreak of the coronavirus and a second lockdown, which will be completely demoralizing, create more economic damage and people will remain unemployed for much longer,” said Yun.