The new Real Estate Bubble has arrived.
By Melissa Terzis, Realtor, Washington, DC, for WOLF STREET:
My phone doesn’t stop ringing. I’m a Washington DC Realtor staring down a spring market with a couple dozen buyer clients on my roster. It’s not a secret that the pandemic shifted real estate in ways almost no one imagined. Initially, when world shut down in March, I was still working. I had just a few clients but they had seriously high intent. The sellers also had high intent, because no one wanted people in their house just for fun. The market was pretty efficient. The tire kickers saw themselves out the side door and everyone who was left wanted to make a deal.
Things have changed. Several times things have changed, but it only intensified with each chapter. Every time we think we reached a new low, the desirable housing inventory drops lower and more buyers appear. Everyone is back out there again, with masks, gloves and 2.75% interest rates. The Real Estate Bubble 2020 arrived!
Buyers have forgotten what they used to want, what they used to require before they would buy – walkability, proximity to restaurants and public transportation. No more “I’d just die if I moved to the suburbs.” Now everyone is moving out of the city, in some 2020 version of white-flight. Where no one wanted a pool a year ago, now everyone wants one.
Equally as mind-blowing is the fact that some of the ugliest houses that had no showings and no offers just a year ago, are flying off the market. Agents are reporting that some such homes have had over 130 showings and 25 offers – within a matter of 3-4 days.
How did the wish list of the past decade experience such whiplash?
I’m always so surprised how much people live in “today.” Today there is a pandemic. Today we don’t want to live in a city. Today there are sub 3% interest rates. Therefore, today, I must buy a home.
What happens tomorrow though? I have several friends who have already had their two doses of the vaccine. It’s coming for all of us.
When I ask people why they are moving out of the city, the expectation of working at home indefinitely tops the list. I’m willing to believe some employers will embrace the ways of work from home as a viable alternative. Arguments can easily be made that working from home increases productivity by eliminating the opportunity for water-cooler chatter, as well as reducing rental costs for office space.
But not all workplaces lend themselves well to working from home. Not all employees will want to do this forever. Some people actually enjoy the human interaction. After several years of this, we may begin to see yet another lifestyle shift, where we learn just how much people require that human connection. We may also see employers adjust salaries of employees who formerly lived close to work and have relocated to a more remote area with a lower cost of living.
What about the cities from which people fled? Living in New York City has long been considered a huge accomplishment thanks to Frank Sinatra. “If you can make it here you can make it anywhere.” What about Los Angeles? People aspired to move to these cities for decades and then abandoned them in a flash.
Last year, the DC Real Estate Market saw a steady increase in demand for houses. The initial months were slow as mostly everybody bowed out of the market as mentioned. By early summer, what we lost in a spring real estate market had finally arrived. What would have occurred in March and April just shifted to May and June. As everyone realized this wasn’t just a few weeks that the world would be offline, they started making plans for new living environments.
Many employers at the front end of the pandemic were telling employees that working from home would continue for the foreseeable future and this made people comfortable enough to pull the trigger on selling their city house and moving to a country house.
There was no August slowdown like in years past. The pace continued unabated through fall and when I thought we would get a break, that there would be peace on Christmas Day, I was also wrong. I received 11 showing inquiries to see homes on Christmas. Then I knew we were in trouble. This unrelenting demand will see its day.
When the market begins to defy all logic, it’s time to take a deep breath. Things only change when there is some sort of panic.
We’re in January. Month 11 of the Pandemic. As houses hit the market in neighborhoods no one glanced twice at last year, the buyers are out in full force. Two dozen offers on a 1970’s center-hall colonial with no discernible upgrades in a neighborhood where houses like this historically sat for 2-4 months before selling? I don’t believe it.
I could be convinced this is legit if houses that were highly valued during normal times became even more highly valued. That’s not happening. Some of the highly desired neighborhoods are just cruising along, business as usual. It’s houses that no one wanted a year ago escalating $100,000 or 20% over list price that scare me.
I worked for a National Builder until 2007. I lived 101 version of this class. We all failed. The 201 version has more twists and turns. No mortgage fraud but a pandemic. The same handwriting is on the wall because it’s still the same teacher.
What should you do if you want to buy but you want to be smart? Here are my suggestions:
One, look critically at the house you want to buy. Don’t just go back 90 days like an appraiser would – go back two years. See what the neighborhood homes have been selling for. Is the underlying value there or is this just an inflationary pandemic bubble?
Two, save money and don’t buy at the lowest interest rates. Does it mean you wait until they get back to 6%? No. You only need ¼ point increase and suddenly, a bunch of people exit the market. Sellers get less traffic, less offers and everyone’s expectations realign.
Three, go where people aren’t. In most markets, I tell clients the best way to protect yourself is to go for a house that’s been overlooked by others, maybe sitting on the market a few weeks/months and needs some work. You can make a good deal on homes like these. Right now, the DC Real Estate Market is delivering amazing value on condos. Very desirable condos are sitting on the market right now.
I’m not saying not to buy. But be smart about it. Stay away from bidding high on houses that suddenly fell into favor. Buy something that has been in consistently high demand in the past. Look back years and decades to get a gauge on the demand – not just months or weeks. And look ahead years as well, because living for today and making panic-induced investment decisions based on what’s happening today is something you will have to live with for a while. By Melissa Terzis, Washington, DC, for WOLF STREET.
OK, it’s getting a little crazy: Massive shifts due to working from anywhere and the Pandemic. But some of those shifts started well before the Pandemic. Read... “Exodus” Havoc: Rents Plunge in San Francisco, New York, Boston, Washington DC, Seattle, Other High-Cost Cities, but Soar 50% in Newark in 18 Months, with Double-Digit Jumps in 20 Cities
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