​​The forecast for the coming months is lower temperatures—and a cooler real estate market, if only by a few degrees.

The housing market is expected to shift to something closer to normal this fall, real estate experts say. They anticipate more homes will go up for sale, helping to slow down the unparalleled price increases and bidding wars of the past year.

But the market is likely to remain highly competitive, as there will still be many more buyers than homes to go around.

“We’re going to exhaust the pool of buyers who are still sitting on a lot of cash looking to buy their next home,” says Realtor.com® Senior Economist George Ratiu. “The market does not have a magical way of sustaining this pace [of price growth], because you’re going to run out of people who can afford it.”

However, that doesn’t mean that home prices, whose national median hit an all-time high of $385,000 in the week ending Aug. 14, will fall. In fact, prices increased 8.6% year over year that week. But that’s significantly less than the 17.2% annual rise in April. Going into the end of the year, prices may rise a more modest 5% to 6%, says Ratiu.

“The shift in the housing market will make shopping for a home a lot more tolerable than it has been, because consumers will actually have time to properly think through their decision and won’t be in as fierce of bidding wars,” says Ali Wolf, chief economist of building consultancy Zonda. “Going into fall, buyers may not need to pull out all the stops to win a house, like removing the inspection contingency or waiving the appraisal contingency.”

More homes are expected to go up for sale in the second half of the year. The influx won’t be nearly enough to put a dent in the dire housing shortage that’s the main reason for the record prices, but it may help curb the wild price growth.

“It’s still going to be a very strong housing market. Demand is still going to be well in excess of supply,” says Greg McBride, chief financial analyst at Bankrate.com. “It just won’t be as frenetic as what had been experienced earlier in the year.”

In June, there were 2.6 months of housing inventory for sale, according to the National Association of Realtors®. That’s an improvement from 1.9 months in January. However, a balanced real estate market has between 5.5 months and six months of homes for sale.

“We’re seeing the gap narrowing between demand and supply,” says NAR’s director of housing and commercial research, Gay Cororaton. But it isn’t going to even out anytime soon. “There’s still a huge, huge gap.”

The fall homebuying season is likely to be busier than usual

One thing that won’t return to usual is the pace of sales. Usually, the market begins slowing down and prices even dip in the fall; families typically prefer to get settled before the school year begins. But this year, the COVID-19 pandemic threw off the normal timing, and activity is expected to stay brisk after summer’s end.

“I expect an unusually busy fall season,” says Ratiu. After all, more homeowners are vaccinated and feel comfortable holding open houses, although the delta variant of the coronavirus could change this, or they just can’t delay their move. “Sellers are putting homes on the market. Normally this activity happens early in the spring.”

Demand is likely to stay strong as well—even though many buyers are frustrated or simply priced out. More millennials are hitting their prime homebuying years, and builders have been unable to ramp up construction to keep up with the growing population. With rental prices also hitting new heights, many people are seeing that it’s cheaper to buy than to continue to lease a home.

Plus, mortgage interest rates are still hovering around record lows. The fear of missing out on what could be a once-in-a-lifetime deal will likely entice additional buyers. (Rates averaged 2.87% for 30-year fixed-rate mortgages in the week ending Aug. 12, according to Freddie Mac data.)

And not every home will be affected by a slowdown.

“Don’t expect deals in the fall if you are house hunting in the most desirable part of a market or competing for a particularly nice house,” says Zonda’s Wolf. “Homes that stand out for one reason or another are still flying off the shelf.”

But overall, most buyers may not be as willing to pay top dollar and waive inspections and contingencies for less-than-spectacular homes that would have sold for $100,000 less just a year ago. There aren’t many regular people (as opposed to investors) who can pay all cash for a home. And there likely aren’t as many remote workers fleeing expensive cities and heading for cheaper parts of the country at this point in the pandemic as there were in the beginning.

“We are definitely shifting from an extreme excess of demand to a more moderate excess of demand,” says Ken Rosen, chair of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley. But “it’s still going to be a seller’s market.”

In addition, many first-time buyers can’t afford to pay over the list price of a home if it doesn’t appraise for that much, says mortgage broker Rocke Andrews, of Lending Arizona in Tucson. They don’t have the extra cash to make up the difference.

The emergence of the delta variant is also spooking some buyers who worry about the stability of their jobs.

This could help to explain why the number of purchase mortgages (which don’t include refinances) dropped 18.7% year over year in the week ending Aug. 13, according to the most recent Mortgage Bankers Association data.

The market “will be nothing like the panic we saw” going into the fall, says Rosen. “It already is more orderly in many, many markets.”

Foreclosures likely won’t play a big part in the cooling market

Many folks have been anticipating a wave of foreclosures to sweep the country as moratoriums to protect struggling homeowners expire. However, it’s not expected to be nearly as severe as what happened during the Great Recession, or lead to an influx of homes going on the market.

Homeowners who haven’t made mortgage payments during the pandemic make up just a fraction of the housing stock—just 3.26% of mortgages were in forbearance as of Aug. 8, according to the most recent data from the Mortgage Bankers Association. Many of these folks will resume payments or work something out with their lenders. But at least some of these 1.6 million homes will hit the market.

Those homeowners who can’t resume their monthly payments and have enough equity in their properties can avoid foreclosure by putting their homes on the market. With prices at these levels, they may even walk away with a profit, and it won’t damage their credit.

“The middle-class and the upper-income groups won’t even notice the wave of foreclosures because it won’t be in their neighborhoods,” says Norm Miller, a real estate economics professor at the University of San Diego.

Lower-income homeowners who lost their jobs during the pandemic and don’t have much equity will likely be the ones who go into foreclosure. Their homes are expected to be in the lower-third price tier.

The number of foreclosures and how quickly they go up for sale are expected to vary from state to state. Some states have protections in place for homeowners that can delay proceedings significantly.

Some first-time buyers will scoop up these properties as the previous owners are forced back into the rental market. But the bulk are expected to go to investors, says Miller.

Investors are expected to keep home prices strong. During the pandemic, more institutional investors, such as pension funds and financial firms, have bought up single-family homes to turn them into rentals. Many can buy in bulk and pay in cash. That’s likely to continue.

Origination: https://www.realtor.com/news/trends/housing-market-continues-cooling-fall-season/

 

Back in the 1930s and ’40s, many American homes more resembled Lincoln’s birthplace than today’s McMansions.

In 1936, Barron’s wrote of efforts by General Electric and Westinghouse to persuade thousands of dirt-poor families to electrify their homes and farms and leave the Dark Ages behind.

Clarence Barron himself was born into a home without electricity, back in 1855, though by 1925 our founder lived in one of Boston’s grandest mansions. And he was predicting that “this country is in for an era of upbuilding and expansion never before dreamed of.”

Said Barron: “I have had doubts for some time whether as a nation we were home builders or automobile buyers,” concluding that “we are doing both, which is phenomenal.” Barron was right, but that era of upbuilding and expansion was cut short by the crash of 1929 and Great Depression, which cast millions into poverty.

New Deal initiatives such as the Tennessee Valley Authority lifted many out of impoverishment and into the world of modern conveniences, such as indoor plumbing. But the big change came, as with so much of American life, after World War II.

Bill Levitt’s plan was to build 1,000 rental homes for returning soldiers on the GI Bill. The identical, mass-produced bungalows, with modern kitchens and appliances, constructed on potato fields some 30 miles east of Manhattan, “were snapped up eagerly,” Barron’s wrote in 1952. Then another 1,000 rental units were snapped up, as were many thousands of others for sale.

“Year after year, the sprawling development, straddling and winding around a good many already existing properties, outgrew the builders’ original expectations,” we wrote. Before long, Levittown—as it became known—constituted 17,500 homes and set the template for suburbia and the American Dream.

With Clause 25 of the lease agreement, which barred occupation by anyone not of the “Caucasian race,” Levittown also set a template for government-approved segregated housing.

Seven more Levittowns were built, and many thousands of housing developments like it sprang up across America, turning the U.S. into a nation of homeowners, with the ownership rate rising to 61.9% in 1960 from 43.6% in 1940.

Along with the attendant sprawl—strip malls, gas stations, fast-food joints—came home prices that seemed to defy gravity.

By 1979, the average house cost about $70,000, compared with a $2,500 Depression low, according to Barron’s. “Price acceleration,” we wrote, had assumed “the characteristics of a full-fledged mania,” comparable to the stock market “mania that led to the 1929 crash.”

For one analyst, the message was clear. “The top of the real estate market is approaching,” wrote Charles D. Kirkpatrick II in 1979, recommending that “investors start liquidating holdings.”

He wasn’t the only doomsayer. In 1988, Stan Salvigsen of Comstock Partners warned of a coming “collapse” in real estate prices due to a “tremendous buildup of credit.” And in 2005, Yale University economist Robert Shiller told Barron’s, “The home-price bubble feels like the stock market mania in the fall of 1999, just before the stock bubble burst in early 2000.”

While each of these warnings was followed by a housing market correction, those who resisted the call to sell and held on to their property were rewarded handsomely. 

For instance, the median sale price for U.S. homes when Schiller warned of a bubble in the second quarter of 2005 was $233,700, according to Federal Reserve data. Prices would peak at $257,400 two years later before bottoming at $208,400 in the first quarter of 2009, in the wake of the subprime-mortgage crisis. 

Yet prices would recover fully by 2013, and as of the second quarter of this year, the median price was $374,900, driven in part by a virus-related flight from cities.

The housing market may “cool a bit after a sizzling summer of sales,” Barron’s wrote in June, but “there’s plenty of pent-up demand from first-time buyers and others aiming to take advantage of historically low rates.” 

In other words, don’t bet against housing just yet.

Origination: https://www.barrons.com/articles/things-to-know-today-51629714452 

 

Sales of existing homes — which include single-family homes, townhomes, condominiums and co-ops — were up 2% in July from the month before, marking two consecutive months of increases, according to a report from the National Association of Realtors. 

The number of available homes for sale also rose a bit in July, relieving some of the pressure on buyers. And while home prices still climbed year-over-year, they did not top recent record levels, the report found.

“There has been a turn in the market from super heated to still very strong,” said Lawrence Yun, NAR’s chief economist.

A consistently tight supply of inventory has pushed home prices higher over the past year, but that picture is improving slightly, said Yun. The inventory of unsold homes increased 7.3% from June to July, but it was still down 12% from a year ago, NAR reported. Unsold inventory is at a 2.6-month supply at the current sales pace. A balanced market is about a 6-month supply of homes.

“We see inventory beginning to tick up, which will lessen the intensity of multiple offers,” said Yun. “Much of the home sales growth is still occurring in the upper-end markets, while the mid- to lower-tier areas aren’t seeing as much growth because there are still too few starter homes available.”

The median price for an existing home in July was $359,900, up 17.8% from a year ago and marked 113 straight months of year-over-year gains. But the price jump for July is down from increases of 20% or more that were occurring in the market over the past year.

Cash purchases remained strong however, the report said. All-cash sales accounted for 23% of transactions in July, the same as the month before and up from 16% a year ago.

“Although we shouldn’t expect to see home prices drop in the coming months, there is a chance that they will level off as inventory continues to gradually improve,” said Yun.

But many people remain priced out. First-time buyers are continuing to struggle in this market, and are pushing rental rates higher as they give up on buying, Yun said. The share of first-time buyers in July was 30%, down from 31% in June and 34% in July 2020. 

Low mortgage rates continue to be an important factor helping prospective homebuyers, said Danielle Hale, Realtor.com chief economist.

“Despite the ongoing challenges of today’s housing market, including limited inventory, lightning fast home sales and competition from investors with deep pockets, many buyers are finding ways to persist until they find and close on a home,” said Hale.

Still, she said, plenty of prospective buyers are considering whether to pause their search. But, Hale said, they should be aware that there is usually a seasonal reprieve in the competition heading into the fall. 

“Although we didn’t see this sweet spot last fall as buyers were making up for time lost to lockdowns, there are signs that we’ll see it this year,” she said.

Yun said he has heard anecdotal reports from NAR member agents that fewer homes are being sold for more than the asking price than earlier this year, and there’s less intensity around bidding wars. 

He expects there will be an inflection point this year where inventory will be greater than the year before.

Origination: https://edition.cnn.com/2021/08/23/homes/us-home-sales-july-feseries/index.html 

The COVID-19 pandemic turned the real estate market inside out, as the big cities swiftly lost their megawatt appeal—with their home prices and rents plummeting accordingly—while the farthest-out, sleepiest suburbs suddenly became new hot spots for homebuyers.

The exurbs, as these outer suburbs are called, experienced the highest price growth over the past year, according to Realtor.com®. While suburbs closer to the urban core remained the most popular with buyers, exurbs saw the biggest increase in interest from home shoppers.

That surge was driven by the fear of COVID-19, the rise of remote work, and the search for more affordable homes with enough square footage in which to quarantine with the whole family. Builders have also been putting up new homes in these areas, where land is cheaper and more plentiful.

However, the future of the exurbs in a post-pandemic world remains uncertain. Many workers will eventually have to return to their offices, even if it’s just a few days a week, making the issue of a commute relevant once more. Plus, exurbs have historically been more vulnerable to downturns—they were hammered in the Great Recession. Fears of a bubble, however unlikely, could give buyers pause.

These areas could find themselves competing with the appeal of urban life again. Big cities became more attractive as vaccines became available and businesses and entertainment venues reopened their doors.

However, the emergence of the delta variant could complicate things further.

“The jury is still out,” says Realtor.com Chief Economist Danielle Hale. “It’s possible that some areas that saw prices rise because they were particularly attractive during the pandemic might not be able to sustain those high prices. … The factors that drew people to those areas, like having a lot of space and being far away from everything else, may change.”

Will home prices in the exurbs eventually fall?

Prices have grown the most in the exurbs during the pandemic. Depicted above are exurban ZIP Codes in the 100 largest metropolitan areas with enough listings to derive meaningful trends. (Sabrina Speianu/Realtor.com)

The big question for many is whether prices in the exurbs will continue to go up—or if they’ll decline. Since buying a home is the largest investment most people will ever make, most buyers want to be as sure as they can that the value of that investment won’t go down.

The shortage of homes for sale and higher prices in the closer-in suburbs and cities may continue to force aspiring homeowners on a budget and struggling renters to move farther out to find more affordable housing. That demand could keep prices in the exurbs from falling.

“The desire for affordability, which is only going to become more important as interest rates go up, is going to keep interest in the suburbs and outer suburbs high. They have always been the escape valve for high city prices,” says Hale.

“It’s not a new phenomenon that, when people can’t afford the city, they look further out,” she continues.

The potential staying power of the work-from-home phenomenon will also likely prevent prices from slipping too much. If workers can go entirely remote or commute only once or twice a week, they may be more likely to seek out cheaper real estate in a more bucolic setting.

“I don’t think prices will drop off dramatically,” says Kelly Mangold, who specializes in real estate economics at the consulting firm RCLCO. “Everyone’s not going back to the office five days a week anytime soon.”

Investors, who typically seek out cheaper housing they can buy and flip or rent out, may also give these areas a boost.

“We’ll still see healthy price appreciation,” says Devyn Bachman, vice president of research at John Burns Real Estate Consulting. Or in certain areas that experienced rapid price hikes, “you may see small corrections in these markets.”

On the flip side, more square footage and larger backyards require more maintenance, and many cash-strapped buyers may not want to pay to have all that grass mowed or the snow shoveled. It’s also more expensive to heat a 3,000-square-foot home than one half the size.

Higher mortgage interest rates could also hurt prices in the exurbs. Rates fell below 3% for an average 30-year fixed-rate mortgage during the pandemic. This made ultrahigh prices more palatable, because the lower rates offset some of the higher costs, helping monthly mortgage payments stay affordable. If rates rise, home prices won’t have the same room to rise. They could even dip in the places that experienced the biggest run-up in prices.

“The mortgage payment becomes very high,” says Ali Wolf, chief economist of building consultancy Zonda. “There are locals who will just get crushed.”

But housing experts don’t expect a full-blown crash even if prices do correct a bit. There is more demand for housing than there are homes available—the opposite of what happened in the mid-2000s. And unlike in the last real estate bubble, only the most qualified borrowers are being approved for mortgages, lessening the chances of another foreclosure crisis.

Builders are putting up more homes in the exurbs

The thing about remote suburbs is that they have potential for development—and builders have taken notice. There’s more land available for building in these areas.

Roughly 9.2% of construction on single-family homes was in the exurbs of large metropolitan areas in the second quarter of 2021, according to the National Association of Home Builders. That’s in addition to the 8.9% of construction in the outer suburbs of medium-sized metropolitan areas.

“Exurbs have great potential for development,” says Realtor.com’s Hale. “They have more open space for builders to build and create things, which is a bit harder to come by the closer in you get to the city.”

Putting up more homes brings in new residents, which attracts more grocery stores, shops, restaurants, and entertainment. These amenities in turn make these communities more desirable and could keep the housing markets in these areas strong, unless the supply of homes outstrips the demand for them.

But overbuilding doesn’t seem too likely. Builders have a lot of catching up to do to meet demand, and they’ve  been skittish since the last real estate bust.

“Builders are skeptical about how much this may last and are being more conservative about shifting their pipeline in that direction,” says Hale.

Origination: https://www.realtor.com/news/trends/future-of-the-exurbs-where-prices-jumped-during-pandemic/

 

Prewar. The very word conjures images of the elegance and grace of an earlier, more refined and less cynical time. When employed to describe buildings, the term is most often used to denote the charming, sophisticated but all-too rare pre-1941 residential structures of Manhattan, many of them sprinkling the storied Upper West Side. 

Even more, limited in number are prewar conversions, which offer the aesthetics of their earlier epochs but also incorporate amenities demanded by today’s discerning buyers. The developers of these conversions have updated the layouts, ensuring they remain true to the buildings’ historic essence, while delivering a more open and functional flow.

It’s no surprise UWS prewar conversions like Astor, 378 West End Avenue and the recently unveiled Marlow are increasingly sought by buyers who relish history and tradition as much as the creature comforts of today’s newer ground-up developments.

Redesigning prewars for contemporary lifestyles requires of architects a balancing act of sorts. When designing contemporary luxury residences in prewar buildings, architects must comprehend the “bones” of the buildings. Prewars possess charm, architectural grace, scale and an emphasis on room-making. The result is well-proportioned space imbued with intimacy and character. Architects try to keep what makes each prewar structure special, while re-interpreting the building for modern living, says Julie Nelson, partner at BKSK Architects, the firm responsible for Marlow.

The Astor, 235 West 75^th Street

Delivering Gilded Age glamor for a new generation in the heart of the Upper West Side, The Astor is being called one of the most celebrated landmarked condominiums in New York City real estate history. Renowned for its trademark trio of towers on Broadway between 75^th and 76^th Streets, The Astor represented the epitome of luxury when it debuted around the turn of the century. Recently restored by design firm Pembrooke & Ives, it marries classic architectural style with the most modern of features and finishes.

378 West End Avenue

Positioned on the Upper West Side’s grand residential boulevard, this is a time-honored and intriguing condominium located steps from Riverside Park. COOKFOX handled design both inside and out, while Alchemy Properties developed the property. Among its most arresting features are unobstructed views over landmarked buildings, a generous share of social, fitness and wellness amenities and elegant residences blending prewar space with the abundant natural light and contemporary design of modern buildings.

Marlow, 150 West 82^nd Street

Developed by Slate Property Group and BentallGreenOak, designed by BKSK Architects and featuring a model unit decorated by Nate Berkus and Jeremiah Brent, Marlow is a 10-story, 27-residence building with homes that range from studios to four-bedroom penthouse duplexes.

The 1926 building delivers a broad array of sizes and floor plans, and such features as prewar beamed ceilings soaring to nine feet, with Windsor Pinnacle series double-hung windows and walk-in closets throughout.

The kitchens are distinguished by custom white oak cabinetry with lacquered white bronze detailing, a specialty etched glass backsplash and Kohler brushed brass finishes. Prices start in the high $600,000s. Outside, some of the Upper West Side’s most appealing attractions, including Central Park, high-end restaurants, cafes, music venues and landmarks, all are easily accessible to building residents.

“This pre-war conversion building has a completely different appeal opposed to ground-up, new development,” says Shaun Osher, CEO of CORE, the boutique brokerage that is the exclusive sales team for Marlow. CORE launched sales this summer.

“It incorporates the best of both worlds. The Marlow encapsulates history, charm and architectural integrity while boasting sophisticated, modern-day finishes, layouts and amenities buyers are seeking. There is an increased demand for residences that offer exclusivity, outdoor space and the convenience of a condo unit that has the feel of a single-family home, which is exactly what Marlow delivers.”

Origination: https://www.forbes.com/sites/jeffsteele/2021/08/18/character-meets-comfort-in-uws-prewar-conversions/?ss=real-estate&sh=4622b7bf742a