 The extent of my pizza knowledge is that it’s delicious and I love to eat it. But there’s also this New York economics idea called the “pizza principle”. In a normal functioning economy, a slice of cheese pizza will always be the same price as a subway ride. Since 1980, it’s actually been fairly accurate—rises in pizza prices have indeed been able to predict price hikes in public transit.
Until now, that is. Prices for plain slices are now $3.14 throughout NYC while subway fares are frozen at $2.75. Inflation has hit pizzerias particularly hard at a faster than usual pace with soaring gas bills (gotta keep those pizza ovens running), much pricier ingredients, and major hikes in labor costs. And it’s having a real impact on people’s wallets. And stomachs, which let's be real, is the biggest tragedy of all. ...Or something like that.
After two years of being spoiled by record-low interest rates, they're finally starting to creep back up, thanks to the Fed's attempt to tame the beast that is inflation. In just one month, rates jumped half a point from 3.11% to 3.64%. That's the largest one month jump we've seen since December 2013! On a $1M loan, the difference in rates equate to a $300 increase in monthly mortgage. As if the market wasn't challenging enough for buyers to get into these days. So how will this affect the housing market? Simply put: The higher mortgage rates go, the more bearish the outlook for home price growth. A more nuanced perspective: "The impact of rising interest rates depends on where they land. If rates approach 4% before the end of the year, there will be a notable downshift in housing demand. If mortgage interest rates gradually rise throughout the year, allowing home sellers to price their homes accordingly, then the shock to the system will be less noticeable." Low interest rates, housing shortage, everyone working from home, etc etc etc., all of which came together to create the perfect storm for another record-breaking year in real estate. Here are the new housing records set in 2021.
Cheers to the new year with a more balanced housing market! Hopefully.  It's rough out there for home buyers—bidding wars, crazy fast appreciation, and homes going into contract in a week! A strong stock market and low interest rates have increased the purchasing power of buyers. With such fierce competition, buyers need to get pre-approved and be ready to go see homes the second they hit the market to stand a fighting chance. You know what they say: “If you stay ready, you don’t gotta get ready”...or something like that.
Also, plot twist: millennials are unexpectedly the ones driving this market, buying multi-million dollar "starter homes". Amazing what you can afford once you stop going out to brunch for avocado toast. Remember last March when the world shut down and we all rushed to the grocery stores to buy toilet paper in an irrational panic? Well, here we are one year later and that same energy seems to have translated to any decent house that pops up on the market. Along with many other agents, I've been spending the last many months taking a brutal beating with my buyers in this insane housing market. Buyers are waiving all contingencies and far exceeding the comp prices just for the chance to get a house. 20, 30, even 40+ offers are not uncommon anymore. And there's no signs of this letting up for the rest of the year. But unrelated good news: at least we get to procrastinate one more month until May 17th to do our taxes!
In a strange turn of events, rent levels and home prices have diverged across the country. Home values increased in all of the 100 largest metros in the U.S. But in some of the richest cities—rent prices fell, many by double-digit percentages.
Why is this very unusual trend happening? Like so many other financial and social matters, it might be the economic divide. The pandemic has unfortunately widened the gap between those who are thriving financially and those who are barely scraping by. While the stock market continues to go up, making wealthy people even wealthier, millions of Americans remain unemployed and struggling. And the same is happening in our housing market. As demand for homes soars and prices are increasing at a much faster pace than incomes, high-end homeowners are seeing their property values skyrocket. Meanwhile, those looking to purchase low to middle-tier houses are finding it difficult to even afford a place. Demand for housing has continued to rapidly grow throughout 2020, and it is only expected to surge even further as economies reopen in 2021. Zillow predicts that annual home sales will reach their highest since the 1980s, forecasting nearly 22% growth.
They also believe that city living will make a comeback next year, especially as the vaccine becomes more widely available to the general public. While a lot of young adults moved back in with their parents this year to save money, it is likely that once the economy bounces back, they will be moving back into big urban areas in droves. (Does that mean the sad SF condo market will finally make a comeback??) Zillow also expects that buyers will continue having a hard time affording homes, particularly if mortgage rates start to increase in 2021 and housing prices remain high. At the same time, if rates are indeed predicted to rise later in the year, this may cause an even bigger buyer frenzy for those looking to lock in low rates ASAP. Sadly there seems to be no end in sight for bidding wars. :( Amidst a tough year in terms of the pandemic, widespread economic shutdowns, business furloughs, and record high unemployment rates, one of the silver linings in the train wreck that is 2020 has been the boost in the real estate market. As more people began to work from home and interest rates dropped, the demand for homes surged which created a rush to purchase property.
But this may be creating somewhat of a false sense of security for the overall economy, as the booming housing market doesn’t necessarily reflect the portion of the population that remains unemployed and counting on mortgage forbearance benefits. There is definitely promising data that the economy is slowly healing, but with continued small business failures and corporate company bankruptcies, we should probably proceed with caution. Halloween is coming up, and there's nothing scarier these days than navigating the real estate market in a pandemic world. Inventory is low and demand for Zoom rooms and outdoor space is so high that not even a highly contagious virus, ravaging wildfires, a volatile political climate, or a crucial election that will decide the fate of the world (PLEASE GO VOTE!) will stop a determined buyer from the house of their Covid dreams.
Given the craziness of the market, business has been bananas lately. In the last three months, I've sold 15 homes with 3 more in contract and 6 listings ready to go, while still showing and writing offers for eager and excited buyers who just want a place to live. The market is moving so fast that my days are starting to blur together and suddenly months have passed without sending out a single newsletter and now you know why even though you didn't ask. Needless to say, it's been a bit of a whirlwind lately, but I'm super thankful for it and wouldn't have it any other way. :)  Among all of the crazy things that 2020 will be remembered for, a record-breaking year for real estate will definitely be one of its more surprising outcomes. Since the pandemic hit, about 2.9 million U.S. homes have been put on the market. That’s almost 400,000 fewer homes than the same time in 2019. What gives?
Sellers these days are more reluctant to list their homes due to financial uncertainty, while buyers (particularly first-timers) can't wait to take advantage of low mortgage rates. All of this creates the perfect storm of low housing inventory. With this pandemic still in full force and the Fed promising to keep rates low for a few more years, even the CEO of Redfin expects this "absolutely insane" housing demand to last into 2021...at least! (And in the same breath, he also doesn't see how this can possibly last forever.) The housing market is one of the few sectors to experience a true V-shaped recovery following the initial hit from the pandemic. But without enough houses for sale, the newfound demand is unfortunately driving an affordability crisis, where in many cases, higher home prices strip away the benefit of lower interest rates. |
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