Now is the perfect time to sell a home. If you are looking to buy, come with pointy elbows and a checkbook.
Residential real estate is heading into uncharted waters, according to a slew of studies released over the past month, as demand for new homes continues to rise while supply remains historically low. However, far from being discouraged by limited inventory, buyers are snapping up new homes as soon as they hit the market. The result? Exorbitant prices and a lot of churn in the market.
“It looks like 2021 will see a housing market frenzy that will rival what we experienced in 2020,” said Daryl fairweather, chief economist at technology brokerage firm Redfin, in a statement. In a recent study, his company found that 40 percent of homes under contract sold within two weeks of being put on the market, well above 30 percent last year.
There are a few factors that contribute to a vibrant real estate market. The first is a voracious appetite for new homes that continues to be driven by what real estate analysts are calling the “big shake-up” of the COVID-19 era. In short, Americans, increasingly free to work from home indefinitely, are rethinking where they would like to live. (Last summer, the CEO of Zillow Rich Barton Summarized it effectively in a conference call with investors: “New habits and standards are forming quickly right now. In many cases, like working from home, we’ve found better, more efficient, and healthier ways to live and work. We’re not just going to go back to the way it was. “)
The increase in demand has encountered two major obstacles. The first is that the housing stock was already low before the pandemic. The other is that, for various reasons, the owners stay put. Some balk at the complicated logistics of showing off a house in the age of masks and social distancing. Others face the weird paradox of a hot sellers’ market: while you can get a great price for your home, it’s getting harder and harder to use that money to level up. Whatever the reasons, Redfin found that registrations were down 10% from last year.
Under normal circumstances, booming demand and falling supply would only cause prices to spike temporarily, as buyers would quickly realize that the market was overheated and sit on their money. That is not happening, at least not yet. According to Redfin, home selling prices were up 15% from 2020, which was already quite high.
Part of the reason is that demand is driven by external factors: people have moved because they feel they are have at, high prices or not. The other driver is financial. To avoid the economic effects of the coronavirus pandemic, the Federal Reserve has cut interest rates to the bone, keeping mortgage rates low. In short, while buyers know very well that they are paying a high price for their home, there has never been a better time to take out a mortgage. And so the frenzy continues.
It’s unclear if all of this energy in the market is good for the design industry. The wave of renovation projects inspired by last year’s pandemic has meant that many designers found themselves overwhelmed with work in 2020. This phenomenon is expected to continue into 2021, even as more and more of the public are vaccinated and that the virus (hopefully) recedes. The big reshuffle is already underway, and it’s not going to stop all at once. In general, a vibrant real estate market is good for designers.
However, when buyers pay high prices for new homes, they often move into a new home without much budget for decorating. In 2021, designers could face the eerie prospect of a historic influx of potential clients, all looking to scrimp and save on furniture.
Of course, real estate is a local phenomenon, and every market is different (for example, New York continues to lag behind in its recovery, while Austin, according to Redfin, is experiencing a historic boom in demand). Likewise, different segments of the market have been affected differently. A booming stock market means that the wealthiest clients have probably never felt so inflated, whether house prices are high or not.
But regardless of their region and target demographic, designers would do well to keep in mind that, for now, sellers are in the driver’s seat.
Home image: © Jandrie Lombard | Adobe Stock