Derek Thompson, in The Atlantic, summarized what is happening in the American real estate economy. Here’s a summary, some notes on how it is affecting eastern Massachusetts in particular, and how 4 Buyers Real Estate is responding to it.
The scarcity of housing for sale. Falling rents.
“… in America’s big metros, home prices and rents are going in opposite directions. Home values increased in all of the 100 largest metros in the U.S., according to Zillow data. But in some of the richest cities—San Jose; Seattle; New York; Boston; Austin; San Francisco; Washington, D.C.; Los Angeles; and Chicago—rent prices fell, many by double-digit percentages…What’s going on? Some observers have pointed to the severe shortage of single-family houses that has resulted from the slower pace of building in the U.S. since the last real-estate crash. Short supply is clearly pushing up housing prices. Others point to plummeting interest rates that have encouraged people to seize the opportunity to get a cheap mortgage. And then there’s the wave of new young families seeking more permanent housing, as more Millennials enter their 30s.”
What 4 Buyers Real Estate sees in eastern Massachusetts:
The shortage of single-family homes has been plaguing our work as exclusive buyer’s agents forever. The Boston metro area is overbuilt. Even in the 1980′, it was hard to find buildable land near Boston without tearing down an existing building. Because buildable land is scarce, it is expensive. Therefore, newly built residences tend to be expensive.
The solution, some thought, was to allow two- and three-family houses to be deeded as two or three separate properties with common areas designated. The term is “condo conversion”.
Condo conversion was a mixed blessing:
- It allowed people to own their own place.
- Condo co-owners had to cooperate, within the legal guidelines of their condo docs, to maintain the common property and to live next to or above and below one another.
- Two- and three-family housing that was commonly used for extended family living became singly owned condos, with no flexibility to rent the second or third unit to family or friends.
During the pandemic, extended family living became attractive. Many two- and three-family houses are already converted to condos. Around Boston, condo conversion not only added to the scarcity of single-family housing, but eroded the supply of two- and three-family housing stock, too.
Being a landlord became harder in 2020-21 because of a drop in demand for apartments in the inner city and also in the college areas. In addition, Covid-19 created stress for property owners, since it was harder to maintain their properties while keeping social distance wishes of the tenants.
The overall economy explains why sales prices go up while rents go down
… why the pandemic has created such an unprecedented disconnect between rents and home prices. Understanding this divergence begins with understanding the broader divergence of our “K-shaped” economy, in which the K represents the forking fortunes of the rich and poor during the pandemic. While many hourly workers in restaurants and physical stores have been hit hard by lost wages and unemployment, millions of knowledge workers in white-collar industries such as tech and finance rode out the pandemic by staying (and staying, and staying) at home…In the last year, a lot of middle- and high-income households took advantage of the pandemic to accelerate their plans to buy first homes, second homes, and vacation homes… In some ways, the massive rent-own divergence in 2020 highlighted one of the fundamental tragedies of the pandemic, which has so sharply exposed America’s preexisting social inequalities. The plague disproportionately infected and impoverished minority and low-income hourly workers. But for some rich households, it created the perfect opportunity to spring for that Florida vacation house, or that suburban lot with the south-facing pool.
As the COVID-inspired flight to larger houses boosted home prices, the pandemic took a sledgehammer to urban amenities, and downtown rents fell…All of this has crushed demand for rented apartments in cities…
Thompson’s silver lining:
“This strange moment for American housing isn’t all bad, though—and, in a few years, some very good things could come from it. A historic imbalance between rents and home prices could set the stage for an urban renaissance led by younger and more middle-class residents. The big drop in Manhattan rental prices is already luring back younger residents. For those who love cities—and I do—downtown living is a steal right now, and New York City in particular hasn’t been this good a deal in decades.”
What 4 Buyers Real Estate sees in eastern Massachusetts:
College students did not return to the Boston area in August 2020, as they usually do. Vacancy rates went up, and some landlords lowered their rents. Owners who were running AirBNB spaces also saw vacancies and lost rental income. Renters have more advantage in their markets; however, many are facing deep economic hardship. For renters who were economically stable, there was rental choices that were better than most years.
But, that’s not our business; we work with buyers.
House buying is a different story. We have been in a Seller’s market since about 2010. But this year is different in these ways:
Even fewer properties: Owners who live in their property are, understandably, loathe to invite numerous strangers into their house to see it. Many are waiting until they can go away for a weekend, or a week, before putting the house on the market. We saw a boom in available properties last summer when the listing agents were telling us “the owners are on the Cape.”
Less time: Covid restrictions are being used as an excuse to limit the amount of time buyers can see a property. We think sellers should object to their agents turning away or turning off buyers by only have a few hours for showings before a bidding war. Either the sellers don’t know, or don’t care. We are doing our best to get our clients into properties, and of course, we help them evaluate each place as best we can.
What are we doing for our buyers in this economy?
- Working to find properties that are not caught up in bidding wars.
- Getting the best possible showing appointment.
- Following good practices to communicate with the seller’s agents in ways that help our client’s negotiation.
- Preparing an offer presentation that puts our client’s offers in the best possible light.
By starting the negotiating relationship with the first contact with the seller’s agent, we aim to make our client’s offers look like the best offer. When our client’s price and terms are near the top in a bidding war, we are likely to get their offers accepted–even when our clients retain their rights to home inspection, mortgage contingency, and mortgage appraisal. We have gotten all our clients home inspections before purchase. We have had offers accepted with inspection contingencies when competing offerers waived their rights. We even have some offers accepted that are lower than the competing offer, because of our reputation for bringing prepared buyers.