- Housing market whirlwind began in late spring 2020
- Declining mortgage rates began in late 2018
- Declining inventory began in early 2019
The most common explanation people give for our housing market whirlwind is the COVID pandemic. Yes, demand for more space for safety and remote work was pandemic driven. Yes, demand for living in less dense suburban/rural areas was pandemic driven. But no, pandemic driven demand for more private space, pandemic driven remote working and pandemic driven shifts to suburban/rural areas are not the whole story here.
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Issi Romem (founder of MetroSight, fellow at UC Berkeley’s Terner Center and formerly chief economist with Trulia and BuildZoom) believes there are a number of factors contributing to what many call our current “housing market frenzy.” Let’s look at Romem’s thoughts in a recent article for The New York Times…thoughts Jonathan Miller, president of Miller Samuel Appraisals calls “must reading” for any housing professional.
Let’s look at supply and demand first. Romem reminds us that since the pandemic outbreak, the share of first-time buyers during the spring and summer of 2020 increased from 31% in 2018 an 2019 to 34%, according to a report by the National Association of REALTORS®. Think about this increase…first time buyers only contribute to demand whereas repeat buyers contribute to both supply and demand.
Also relating to supply and demand, Romem points out that typically, some 55% to 70% of buyers are repeat buyers…they are selling one home and buying another. The pandemic has increased the number of second-home buyers…these buyers are not selling one for another…they’re buying two.
Additionally, the pandemic and historically low interest rates have prompted many renters to become buyers. Not only have these former renters consumed more single-family houses and further depleted an already thinning supply, they have also helped soften rental prices throughout the nation and helped accelerate single-family home prices.
Romem’s point…”the sheer rise in the volume of buyers…” if we add up the first-time buyers, the second homebuyers and the now hybrid renter-buyers, we see that the once balance of supply of demand is now an imbalance of supply and demand.
On top of this imbalance (and exacerbating this imbalance) is technological innovation in the housing industry that has made the market operate faster than it used to. Think virtual staging, 3-D tours, drone footage, remote notary services, phone-based entry into for-sale homes, and apps such as Docusign.
Sure, just as mortgage interest rates have been declining since late 2018, inventory has been declining since 2019, and remote working has been available for some years, innovations in housing transactions have also been around a while BUT only recently have transaction innovations been embraced since the pandemic.
Romem believes that the key here is innovation that makes home buying faster. And, Romem thinks “…innovations accelerating the home sale process are the culprit for a more extreme supply and demand imbalance (and that) there’s no turning back the clock on that.” Romen believes the other factors (low interest environments and health fears spurring demand for more space and less density) may linger but are less likely to be permanent than real estate tech innovations.
Thanks to The New York Times.
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