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The booming housing market has helped the U.S. economy come back from the financial and economic impacts of the COVID-19 pandemic, National Association of REALTORS® chief economist Lawrence Yun said Wednesday.
“Housing kept the economy afloat as home prices rose and buyer demand intensified,” Yun told the audience during the Residential Economic Issues and Trends Forum at the REALTORS® Legislative Meetings in Washington, D.C. “However, this year has already thrown some curveballs, including record-low inventory and unyielding inflation.”
Builders are still unable to make up for the slowdown of new construction during the recession, Yun said. In addition to supply chain challenges, there’s very little availability of residential land due to regulations and zoning at the local level, he added. Meanwhile, consumer demand has led to home prices taking a 9.1% jump in 2020 and another 16.9% leap in 2021.
Rents are also up across the country, especially in Florida (more than 20% from a year ago), Arizona, and parts of the Carolinas, Yun said. And he predicts inflation will remain elevated for the next several months.
Considering the rising mortgage rates, some consumers are asking if buying a home right now is a good investment. But Yun points to a February survey of consumers by the New York Federal Reserve, in which nearly 74% of respondents said they would rather build long-term wealth through homeownership than spend their money on rising rent costs.
Comparing 2021 to 2022, the total number of homes sold has ticked down slightly. Yun forecasts that by the third quarter, there will be a decline of about 15% in units sold compared with the prior year. “This means we may be getting the unit sales back to pre-COVID days,” Yun said. “But prices are not retreating.”
A Tale of Two Markets
Felicia Mares with Abio Properties, serving Oakland and Berkeley, Calif., and Harrison Beacher, managing partner of the Coalition Properties Group, affiliated with Keller Williams Capital Properties in Washington, D.C., discussed boots-on-the-ground market challenges during the forum. Mares said the pandemic escalated the already growing trend of San Francisco residents moving across the bay in search of greater affordability. The density of San Francisco also brought out customers seeking more space, she added.
While some larger urban areas lost residents during the pandemic, Yun said, people are starting to move back. In New York, for instance, lower rents attracted new and returning tenants. But, Yun is concerned that the persistently high housing prices in San Francisco coupled with more businesses adopting permanent work-from-home policies will mean continued migration. Mares agreed that work from home is the prevailing trend in California’s tech industry and many residents still haven’t returned to in-person social activities.
Beacher, who characterized the D.C. area as several micro markets, said more than 60% of the buyer contracts he wrote in the first quarter of 2021 were over list price, but in the first quarter of 2022, it was only 30%. However, the highest a buyer offered over list price in the first quarter of 2021 was 11%, while in the first quarter of? 2022, it was 20%.
“What you have to bid this year is higher, and I think that’s a reflection of the metrics in the D.C. area, where there are highly paid people who are extremely competitive. They’re seeing the interest rate rise and they’re saying, ‘I don’t want to pay more in seven or eight months,’ ” Beacher said.
In the Oakland area, real estate professionals were already seeing bids 20% over list price pre-pandemic, now it’s about 30%, Mares said. Predictably, in both the D.C. and Oakland markets, it’s most challenging for first-time buyers. And because interest rates are increasing and demand is not waning, Mares is telling her clients to buy when they can if they can afford the monthly payment.
Beacher is also telling his clients in D.C. to buy when they’re ready, confident, and have their price window set—and when the opportunity presents itself. The job market in D.C. is incredibly strong and tech companies are bringing new residents to the area, Beacher said. People are qualified for the mortgages they’re taking on, and they have jobs that are secure.
“I think demand is only going to increase,” Mares said. “Pre-pandemic was when millennials were just starting to get into the market. But the pandemic really pushed them over the edge to get into homeownership. All the millennials I know really believe in homeownership and have that goal and dream. I think that’s going to extend down to Gen Z. They’re in their early 20s now, and soon they’re going to start coming to live in San Francisco.”
Price growth has been even more pronounced in many smaller markets. Yun used Phoenix as an example. Home prices there have risen 30% over the last year and 50% over the last two years, he said. Phoenix sellers may see a 5% price drop this year, he said, but he does not foresee a sustained decline.