The idea of people fleeing to the suburbs isn’t what we thought – an excerpt:
For the week ending on May 10 — which was around the height of the pandemic in New York City — the percentage of search traffic from the New York metro area to out of market areas rose 5.4 percentage points year-over-year, which appears to reflect a minor uptick in people wanting to get out of the city.
But if you take a closer look at the breakdown of searches by population density, the share of search traffic from the New York metro area to suburban and rural areas dropped, while the share of search traffic looking at other urban areas rose. Taken together, this shows that while there was a minor uptick in New Yorkers looking for homes outside of the New York area, it’s slightly tilted toward other urban areas than it has been in the past. The search data, which is already a weak indicator, does not actually reflect an increase in New Yorkers’ interest in moving to suburban or rural areas.
The same is generally true for a number of other cities as well, including Detroit, St. Louis, San Jose, Pittsburgh, Cleveland, Miami, Las Vegas, Boston, Baltimore, Los Angeles, and Philadelphia.
There were other cities that saw a drop in traffic to out-of-market homes, but the share of traffic to other urban areas still rose — Seattle, Minneapolis, Chicago, Phoenix, Washington, D.C., Dallas, Charlotte, Atlanta, Tampa, Sacramento, San Diego, San Antonio, Columbus.
Of the cities that did see a drop in traffic to homes in urban areas, the drop was negligible. The city that saw the biggest drop was Indianapolis, where traffic fell by a mighty 1 percent.
“We just don’t have any basis to claim a boom in the suburbs,” says Jeff Tucker, an economist with Zillow. “There are people who really believe the urban exodus hypothesis. If there’s an evidence for it in the data, it’s very weak.”
This doesn’t mean there won’t be a flight from cities at some point in the future. As the virus continues to rage on across the country, people who have lost their jobs may decide to leave their cities for more affordable areas. Widespread adoption of work-from-home polices may also give people who didn’t want to live in cities to begin with, the option to leave. People in cities like New York and Detroit, which were hit hard by the virus, may decide they’ve had enough.
With mortgage rates staying under 3% this past week, more people were out looking at homes – a whopping 66% more than last year! It should be a full-tilt boogie for the next few weeks. Hopefully buyers can get their hands on something suitable!
My calendar from April 15th (which was the approx. bottom) with the added red circle for June that came later:
Over the history of real estate, buyers have determined the market.
They decide how much education and investigation they need to complete before making what is now the biggest decision of their life, and then they proceed when ready – or when they see an attractive house, hopefully in that order! There isn’t much education available on how to do it, so people just trust their gut and start looking around – even those who already own a home. HGTV makes it look easy (see three, and buy one), and the disrupters keep promoting that their agent-lite program is all you need. In a hot market, the investigation/education phase usually gets obliterated.
You’d think it would cause people to Get Good Help, to compensate – and many do (thanks!).
But once on the playing field, the buyers are split into two categories:
Those who own a home here now, and are trying to do better.
Those who don’t own a home here, and want/need to get in.
Buyers from the second category are determining the market.
They see every decent home get snatched up by those who got desperate sooner. It becomes a race for those newcomers to get desperate enough so they can compete with those ahead of them.
Buyers in Category 1 already have it good. Even if their home doesn’t suit their current needs, it’s what got them here. The property taxes are lower, the neighborhood is a known quantity, and they are comfortable. Are they going to rise to the same desperation level as those who don’t own a home here yet? It’s doubtful, even if the Prop 19 passes and sellers can take their property-tax basis with them anywhere – nobody is desperate to leave coastal San Diego.
It’s what is causing the inventory to be so thin, and why I’m convinced it’s only going to get worse.
Consider these factors:
Baby boomers are older now – if they haven’t moved yet, it’s probably too late. They will make do with their current residence, and make it last for the duration. Kids will inherit, and one of them will occupy as their primary residence – and the cycle of low inventory for sale will continue for another generation.
San Diego is a mid-range market – there are a number of more expensive areas that makes us look cheap, relatively. It’s those move-down buyers from affluent areas who are filling up Category 2, making it very tough for locals to compete, which prevents them from moving…..which means less inventory.
There aren’t any new-home tracts left to build in Coastal North County.
There will be massive pressure on the Fed to keep rates low for years to come.
The business is being dumbed-down for easier consumption, not smarter.
These factors will keep the inventory low, and competition high for a long time. It also means that the deliberate, informed buyers will keep getting run over by those who are just in a hurry to buy a house.
The old adage of buyers determining the market is being snuffed out.
Sellers can name their price now, and there is probably someone who will at least consider paying it. Until unsold listings are stacking up to the rafters, sellers will ensure that prices keep creeping upward.
The New Listings graph (above) shows how the raw number of homes listed for sale in the coronavirus era compares to the same time frame in 2019.
It shows that 40-50 days after the initial shock, sellers started feeling more comfortable putting their home on the market, and for the last twenty days, San Diego has only been 5% to 21% behind last year.
The graph below helps to demonstrate the supply vs. demand relationship year-over-year, and it’s helpful to call these Unsold Listings because they are the net outcome (Supply – Demand = Unsold Listings).
If we were running at the same pace as in 2019, and the demand percentage had dropped the same as supply, then our Unsold Listings would simply be the same 5% to 21% lower than last year. But our number of Unsold Listings are now 37% below last year – the best in the southwest!
Lower inventory, record-low rates, and the insanity are causing demand to surge!
We love the ‘burbs! One explanation as to why our pricing has been stout:
If millennials once piled into the cities, fueling downtown renewal and growth, apparently they are now piling out.
The stay-at-home orders brought on by coronavirus have more potential homebuyers looking for properties in the suburbs. Millennials are now the largest cohort of buyers.
As the real estate market began to recover in May, home searches in suburban zip codes jumped 13%, according to realtor.com, one of the largest real estate listing websites. That doubled the pace of growth in urban areas.
While homes are spending more time on the market overall, due to complications surrounding closings, both suburban and rural markets are not experiencing that lag time as much, due to very strong demand.
“This migration to the suburbs is not a new trend, but it has become more pronounced this spring,” said Javier Vivas, realtor.com director of economic research. “After several months of shelter-in-place orders, the desire to have more space and the potential for more people to work remotely are likely two of the factors contributing to the popularity of the burbs.”
More than half of the nation’s 100 largest metropolitan areas are seeing increased interest in the suburbs. Real estate agents in the New York City area have reported strong demand in the surrounding suburbs, as contracts on Manhattan apartments plunged 80% annually in May, according to Jonathan Miller of real estate appraisal firm Miller Samuel.
This new flight to the suburbs is clearly benefiting the nation’s homebuilders, who have seen a much quicker recovery than they ever expected.
“There’s no question that there are people who are fleeing the cities. There’s no question that the second home has been a place of refuge. There’s no question people are rethinking whether they want to be in high rise rentals with common spaces as amenities vs. having a home of their own with a backyard,” said Stuart Miller, chairman and former CEO of Miami-based Lennar.
The coronavirus caused banks to pull back on lending, and one niche that was severely impacted was jumbo loans with less than 20% down payment. In early March, you could have borrowed $2,500,000 with 10% down, and by the end of March the max was down to $850,000.
We got lucky and found Dustin at Mission Fed, who is still funding the jumbos at 90%LTV up to $1.5M! My buyers thought he made the process simple and easy, and we closed escrow on the day Dustin predicted in the beginning. We couldn’t be more pleased with the service.
Here is a quick snapshot of some of the out of the box programs and jumbo programs at Mission Fed. This assumes a score of 720+ on an owner occupied purchase of a single family home:
0% down loans to $690,000 (*Not a VA loan. Anyone can qualify for this)
7/1 ARM at 3.125% with a 1% lender credit back for closing costs
10/1 ARM at 3.25% with a 1% lender credit back for closing costs
30 yr Fixed Jumbos with only 5% down
5% down up to a loan amount of $850,000 – Rate as low as 3.25%
All on one loan. No need for a high rate HELOC
10% down payment up to loans of 1.5M
7/1 ARM at 3.125% with a 1% lender credit back for closing costs
10/1 ARM at 3.25% with a 1% lender credit back for closing costs
5/5 ARM @ 2.625% with a 1% lender credit back for closing costs
30 yr fixed jumbo at 3.25%
I like to help people, so I thought I’d mention him and his contact info for anyone reading who might be in the same fix. I don’t know any other lender offering these programs at these low rates – if you know someone, pass them along.
Dustin Gildersleeve · Mortgage Loan Originator at Mission FCU
In April, pandemic-related pressure drove the supply of homes for sale to its lowest April supply level ever. Even in the years prior to the pandemic, the lack of housing supply for sale was a significant headwind to the housing market. A major reason for the lack of homes for sale is increasing tenure – the length of time a homeowner lives in their home. Since the Great Recession, tenure has rapidly increased from approximately seven years to currently more than 12 years, the highest it has ever been. Increasing tenure means existing homeowners, who supply the overwhelming majority of homes for sale, are not selling, which limits supply.
Prior to the pandemic, rising tenure length was the byproduct of two trends – older homeowners aging in place and many existing homeowners being locked-in with historically low mortgage rates. The pandemic-driven economic uncertainty and concerns about the potential health risks associated with showing homes to buyers have made existing homeowners more hesitant to list their homes for sale, exacerbating the increasing tenure issue.
You Can’t Buy What’s Not for Sale
The graph below shows inventory turnover, the total supply of homes for sale nationwide as a percentage of occupied residential inventory. A quick look will show that inventory hit a 25-year low point in December 2019, with a turnover rate of 1.52 percent. In other words, only 152 homes in every 10,000 were for sale, well below the historical average of about 2.5 percent, or 250 homes in every 10,000. Since then, housing supply had slowly and modestly improved. Enter the pandemic in April. Housing inventory fell once more to 1.58 percent. The chart also breaks down inventory by its components: existing-home and new home inventory for sale. Existing-home sales make up approximately 90 percent of all home sales, which means more existing homeowners must sell their homes in order for supply to increase significantly.
But existing homeowners are staying put. Historically high tenure length of over 12 years means both fewer buyers and fewer homes on the market, and a reduction in existing-home sales. In the months preceding the pandemic, there was some modest improvement in the situation as the pace of tenure length growth had slowed, falling to 7.6 percent year-over-year in February. Then came the pandemic and the annual growth rate of tenure length accelerated to 8.5 percent in March and remained that high in April. As more homeowners were reluctant to list their homes for sale amid the pandemic, the supply of homes available to potential home buyers dwindled further. You can’t buy what’s not for sale.
Existing homeowners are staying home everywhere. Average tenure length increased in April in each of the 50 large metropolitan areas we track relative to one year ago. While beginning to slow in most markets in February, annual tenure length appreciation picked up the pace in 45 of the 50 markets once the economic impacts of the pandemic hit in March and April 2020. As pent-up demand from the pandemic-delayed spring home-buying season enters the market, potential home buyers have very limited inventory to choose from. Lack of supply relative to demand is a sure-fire recipe for increasing house price appreciation.
Our inventory has been very consistent in the past – there is only a 10% spread between the high and the low number of listings between 2014-2019. But now we have 20% fewer NSDCC listings than last year, and the median list price is 9% higher:
Number of NSDCC Listings Between January and May
# of Listings
There are additional variables in our market today that we’ve never experienced before, so maybe price will get less scrutiny? Will buyers just pay what it takes to get a house they like?
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