Bubble? What Bubble? Will Today’s Buying Fever Stand Up?

Written by Barbara Pronin Posted On Friday, 04 September 2020 05:00 In the spring of this year, when a global pandemic kicked the legs out from under what began as a strong 2020 housing market, some pundits argued that home prices would plunge as demand went through the floor. But a strange thing happened in the midst of job uncertainty, increasing unemployment, and pandemic concern: as spring turned to summer, people working from home and examining their space began to vie for very limited inventory. “Vacant properties, in particular, became the hottest thing on the planet,” said Robert Bailey, who with his brother, Paul, leads Bailey Properties in Santa Cruz, Calif. “Overall, our sales in July were 23 percent over June, while listing were down 49 percent from the previous year. Multiple offers and bidding escalated to a buyer frenzy.” Appraisers were looking in the rear-view mirror, Bailey said, while buyers were looking out the windshield, sending prices up along with demand in this gateway to Silicon Valley, where tech workers are virtually assured of job stability. Discovery that you didn’t need to go to the office anymore went viral among workers everywhere, especially among the more affluent, noted Jennifer Ames, Licensed Partner with Engel and Volkers in Chicago. “It was almost like being let out of restraints,” Ames said. “Buyers could indulge their desire for more space, more amenities, or greener pastures - and they did so in droves in a rush to find their dream home amid a very tight supply of inventory.” Fueled by pent-up demand and rock bottom interest rates, home sales soared. “We posted the best July in the history of our company,” said Shane McCullar, CEO, Keller Williams Realty Metro Center, Alexandria, Va., gateway to the D.C. metro area. “Houses listed between $500,000 and $1.3 million were selling faster than in the mid-level range. In all, Keller Williams Realty International paid out over $1 billion in commissions.” In fact, according to a mid-July report from the Mortgage Brokers Association, (MBA) mortgage applications nationwide increased 54.1 percent in June of this year compared to a year ago. At present, as school begins in some form or another in every state of the union, and we head toward the natural drop in demand that accompanies every year-end, some of the same pundits who did not foresee the hyperactive summer market are beginning to use the ‘B’word - B as in Bubble - and even the dreaded ‘C’ word, as in Crash. But little is as it was leading up to the last downturn. “For one thing,” Ames said, “there is little of the home-flipping or speculative investing that marked the 2008 market. Sales today are primarily driven by lifestyle and changing family needs.” Additionally, she noted, lenders are much more conservative. “Mortgage lenders who were approving subprime loans for homebuyers with little or no qualifications then are now checking and re-checking employment status and financial circumstances right up until closing,’ Ames said. To make an obvious comparison, noted McCullar, the surplus of inventory that existed before the last downturn is now an under-supply, and the out-of-control price appreciation that marked the last downturn is today at a far more moderate level. “Also,” said Bailey, “where too many homeowners ten or twelve years ago were using the equity in their homes like an ATM machine, today’s homeowners have on average of 33 percent equity in their homes, and their mortgages are at a fixed rate. The economy as a whole, despite rising unemployment, is stronger in many ways than it was then.” In fact, according to the New York Federal Reserve, household debt in the first quarter of 2008 sat at $12 trillion. In the first quarter of 2020, that number was $14 trillion - and incomes, among those who are employed, are slightly higher now than in 2008. As airlines, hotels, and restaurants - and their furloughed or laid off workers - struggle to stay afloat, it remains to be seen whether record unemployment will slow the fevered housing market. “I think we will see a slight decline in sales between now and the end of the year,” said Ames. “But that’s part of the natural cycle. I fully expect a strong market going into 2021.” Interest rates remain low, and prices are not rising at alarming rates, noted McCullar. “And as more sellers realize how much their homes are worth, and become more confident about the sanitary protocols used in showing their homes, more properties will be come onto the market.” Bailey agrees. “Many of the ‘Greatest Generation,’ and most boomers, are still in the homes they bought decades ago,” he said. “But life goes on, and more will be downsizing or changing their living situation. In California, there is legislation supported by the California Association of Realtors which will allow homeowners 55 or older to transfer their property tax base when they move. That should help ease our inventory crunch.” There will be distractions, all the Realtors we talked to agreed - the political climate and the election in November, for one thing. But overall, there is consensus that housing demand will remain high well into 2021. “This is not the new normal,” said Bailey. “It’s the new now. I’m bullish on where the market is going.”