A ‘Weird Recession’ and a ‘Rental Society’: The Industry in Transition
Jesse Williams
other
Another year, another period of unprecedented transition in real estate. Although agents, brokers and everyone involved in the housing market have always been forward-looking as a rule, the last three years or so have required a unique understanding and focus on both the future and the big picture.Recently, the National Association of REALTORS® (NAR) held their annual Forecast Summit, attempting to alleviate at least a little of the anxiety around all the massive changes on the horizon for real estate—from cratering home sales to a recession to institutional investors “gobbling up” the single-family market.“I think it’s really helpful to understand the market, how to understand consumer behavior and how that’s shifted a little during the pandemic,” said Dr. Jessica Lautz, VP of demographics and consumer insights for NAR. “But a lot of that is an acceleration of past trends that we have been seeing.”Much of what Lautz and NAR Chief Economist Lawrence Yun covered in their presentation are indeed issues that anyone paying attention to real estate will be at least somewhat familiar with. But breaking down exactly where the data is pointing—how fast things are moving, where trends are resilient versus transitory—was surprising.One notable trend is that homes are still disappearing quickly. Spending an average of 14 days on the market, according to Lautz, 88% of homes sell in under a month. This is despite a significant drop in the number of offers per home, plummeting from an average of 5.5 at the height of pandemic-bidding warfare to 3.4 in just the space of a couple months.“In some local markets, I know that’s laughable,” she said.But Lautz said that more than three offers is a great overall indicator as far as demand, and these offers are likely good ones.“We’re not talking about the bottom of the barrel here. That’s still pretty good,” she asserted. “Those are probably qualified buyers who are probably able to ratify that contract—finally, for many of them.”Yun added that some people still have a locked-in mortgage rate from before rates rose precipitously early this year, and are jumping to snatch up homes as other buyers—who might not have locked in a low rate—are getting priced out.Another trend that was a little uncertain was vacation home purchases, which spiked at the height of the pandemic, with 22% of all home sales from small investors (used for Airbnb or seasonal rentals) or second-home purchases. That has dropped significantly to about 16%.Something that has also worried many onlookers is foreclosure sales. As a housing market pullback accelerates, there has so far been no real increase in short sales or foreclosure sales, still at 1% (these sales made up 49% of the market at the height of the 2008 crash).“We’re really just not seeing that today,” Lautz said.From the granular level of how people buy and sell homes in 2022, Lautz highlighted the fact that virtual home purchases—buying a home without ever physically visiting the property—has remained steady, with 12% of buyers making a home purchase sight unseen, even as pandemic restrictions have waned.“I think what’s happening here is there’s still low inventory, but we also know migration trends are playing a part of this. If people are moving a long distance away, and they see that perfect home jump onto their MLS, they’re going to say, ‘You know what, you’re my REALTOR®, show me that home virtually,’” she said.On the same note, 85% of buyers are still looking for homes outside of city centers, and 34% want work-from-home amenities in their home, proving that remote work is a persistent trend. Lautz suggested that highlighting any kind of feature related to work from home in a listing would remain a great practice for listing agents.Yun, who focused on the big-picture economy, explained that the labor economy continues to behave in what he called a “bizarre” manner even as other major economic indicators have at least started to normalize post-pandemic.“In an environment with rushing mortgage rates, what will drive home sales is jobs,” he explained.Specifically, he pointed out how the number of workers who have seemingly permanently abdicated the workforce has remained stubbornly high, with 2 million people still on the sidelines even after stimulus payments subsided and industries reopened.“Help wanted signs are pretty much everywhere,” Yun says. “Theoretically, it is still almost a two-to-one ratio in terms of job openings to people who are unemployed.”He qualified this, however, by noting that many people are not finding the right job to match their needs, demanding higher pay or seeking a match for their qualifications. Construction job openings specifically have reached a record high, with advocates pinpointing both long and short term underinvestment in this industry.But Yun affirmed that having so many open jobs was “unusual” in a recessionary environment.“It’s a very weird recessionary condition—I don’t know if I want to play with the word.”An unequal regional distribution of jobs was another notable oddity of the current economy, according to Yun. Comparing what the market looked like right before the pandemic, different areas have experienced wildly different recoveries.“There is some variation. Generally speaking, Rocky Mountain states along with southern states have turned positive, while the rest of the country is struggling or almost getting back to normal but not there yet,” Yun said.In terms of the well-documented dive in home sales, trends seem to be pointing toward a consistent downturn, with five months of lower sales bringing the country just below where it was before Covid, according to Yun. Leading indicators are also negative, he added.“Essentially, some people are very uncomfortable with higher monthly payments, and other people simply don’t have the money,” Yun said.Inventory indicators are on the way up, and in tandem with some buyers being pushed out of the market, Yun said it was likely that buyers could soon “be more relaxed, look at three, four, five homes…just like the olden days.”The incredibly persistent trend of prices, still spiraling up despite these other falling metrics, could partially be explained due to the fact that list prices are high even if contract prices are falling.“That’s why you are getting this conflicting report where home sales are coming down but prices are hitting record highs,” he explained. “Sellers are looking at what their neighbor’s home sold for…and then they are essentially reducing.”Maybe the hottest topic that was not directly related to housing was the question of whether the country has entered, or is soon likely to enter, a recession, with several audience questions on that theme. Yun said it isn’t that simple, even though based purely on GDP, the economy is indeed in recession.“In 10 years, they will say whether we were in a recession or not,” he said.Besides a recession, something that was not covered by either Lautz or Yun, but was asked about by viewers is institutional buyers and investors. Yun waxed philosophical, wondering just how far big Wall Street-backed companies could transform housing in the United States as they “gobble up” single-family homes to rent them out. Investors make up 20% of all buyers, according to Yun, but that includes both big and small, mom-and-pop operations.“The numbers are a little hard to get as to true Wall Street-backed institutional investors, corporate landlords in a sense. But it is rising. It is a concern,” Yun said.At the very highest level, this trend—which has grown dramatically as big hedge funds and private equity firms see opportunities in real estate—could transform housing at a fundamental level, according to Yun.“I think the bigger question for society is, do we want to see an ownership society, or do we want to see a renter society? I think many people will say an ownership society is preferable, a way to build wealth,” he said. “Corporate investors, in a sense, are hindering the country from becoming a more ownership society.”
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