In nearly two-thirds of the metro areas tracked by NAR, prices posted double-digit gains. The biggest gainers were Bridgeport, Conn., where the median price rose 27.3%, and Crestview, Fla., up 27.1%.
My thoughts:
1. The NAR tracks the median price of homes sold, which depends on the mix of homes transacted. If the demand surge is for bigger homes, some of the rise in the NAR measure represents a mix shift.
2. I assume that not all of the real estate market is healthy. Apartment rents are probably down, at least in places like NY and SF. Commercial real estate is probably in bad shape.
3. The economic impact of the virus is probably very uneven. Affluent people who have kept working from home are spending less and banking their salaries, which can now go into housing. But job losers are not getting into the housing market.
4. Maybe we are starting to see some inflationary consequences of lockdown socialism.
A couple of observations based on what I’m seeing…
a) all of the action is with the upper middle class (aka the work-from-home crowd).
b) those folks are upgrading their houses (so much easier to do when working from home). Have a look at the profit increases at Home Depot or Lowes.
c) or those folks decide to sell their homes and upgrade to something else. Again, so much easier when working from home. Home prices are up significantly.
d) the upper middle class apartment dwellers have decided to move out of the urban areas. Apartment rents way down in the SF Bay Area. Oddly, they seem to have decided on the Lake Tahoe area as a destination.
e) construction crews are in short supply. I’m seeing sold lots and partially constructed homes slog along at a really slow pace. I’m thinking that there is a delay of 6-12 months.
f) those low interest rates are a significant factor.
These are just observations (and not facts), so please feel free to pushback.
g) wild card: massive increase in residential property crimes (burglaries, robberies, etc.) in the urban areas. Much more likely to impact the upper middle class vs. the spike in homicides. Are they going to tolerate it or move on to greener pastures?
[also, it’s been fun to watch all of the anti-gun folks flood the market with their first time firearms purchases. But, stay away from them at all costs at the gun range while they slowly learn the 4 safety rules]
f) those low interest rates are a significant factor.
I wonder what percentage of the mortgages are fixed-rate. People could be in for a nasty surprise if rates don’t stay at historically low levels.
Some good charts on savings here (Yglesias) :
https://www.slowboring.com/p/whats-wrong-with-the-media
Folks able to work from home.
Plus, as often mentioned, house price increases are part of Asset Price inflation, where all the budget deficit monetized debt is going, along with stock prices.
If you take out the composition noise, prices are still up a lot for a single year.
Interest rates are obviously the biggest story. A $500,000 home, nearly double the national average, at the 2.625% 30 year I see on Wells Fargo would only be $2,200 a month with 20% down including mortgage, insurance, and property tax.
Looking in my town, a 4BD townhome probably selling for $4XX,XXX is asking $2600 a month in rent. And an 1800 SQFT 3 BD detached that zillow says is worth $4XX,XXX is renting for $2,500.
According to all these affordability calculators someone can afford a $500,000 house on an income of $100k. The median household income in the town is $120k, and I think that the median house price is somewhere in the $5XXK range, so that makes sense.
Buying just makes a lot more sense than renting at these low rates.
If Biden repeals or increases SALT then it will make sense for most people to itemize and in affect that means interest and property taxes are effectively reduced by the marginal tax rate of the homeowner.
Out here in the exurbs of a major city everyone is optimistic about housing and there is a lot of demand. Quality of life is a lot nicer out here, but identical houses 20 min closer to the city would command hundreds of thousands of dollars in premium for shorter commutes. Now that work from home (nearly every single person in my development works from home at least some of the time) has erased that impediment everyone wants to upgrade to a nicer life in the exurbs. It probably helps that if you had to go into the office every once in awhile its not a huge slog, and we are still close enough to various amenities.
Meanwhile, my aunts fancy east side apartment building is full of vacancies and rents are down 20%.
The $600 a week was above replacement income level of many of the poor while it lasted.
Nobody is getting evicted and mortgage companies aren’t recognizing delinquency.
Help me get some perspective re: these rather unique circumstances propping up the described residential real estate markets.
It is so tempting for people to buy the maximum house that a lender is willing to finance. Not very prudent, though. Especially if these enhanced values are primarily reliance on temporary economic/pandemic circumstances that may be revised and/or terminated at any time. E.g., Vid-panic disappears on January 20th?
I suppose that, so long as lenders are holding to a minimum of 20% down & proof of adequate income in support, that should(?) be sufficient equity to absorb an unexpected reduction in market values of comparable residential real estate. Or, termination of employment: we’ve seen that internet-altered employment situations happen, and more can perhaps be accomplished by fewer warm bodies on the payrolls? How secure are these buyers’ jobs, anyway?
Might we see a residential real estate drop similar to 2008, if the Vid-bubble pops?
I’m pretty risk-averse in my personal financial matters, so perhaps I’m over-thinking this?
“Affluent people who have kept working from home are spending less and banking their salaries, which can now go into housing.”
Maybe not just affluent people but anyone looking to get out ahead of the transition to shareholder capitalism. Securities are going to get hammered when every corporate manager feels entitled to throw away investors money on their pet social causes. Amazon has never paid a dividend but Bezos is flushing $10 billion down the toilet on climate change. And this is quite typical nowadays. The Biden Administration is getting criticism from the left from staffing up with a lot of corporate types, but most of those corporate types are from firms that have never paid a dividend. Supporters of capitalism should be talking about this before it’s too late and we are completely into a Liz Warren fever dream dystopia. Parking money in real estate may seem like a better return than parking it in Amazon shares.
The notion that there is a housing shortage is curious. Aside from the obvious fact of scarcity relative to demand which is true of every good and is why economics is “the science of scarcity,” which is no doubt lost on modern journalists steeped in socialism, NAR also reported as of October new housing starts seasonally adjusted annual figure of 1.53 million and the September annual rate of 959 thousand new homes sold. What is the correct normative macroeconomic answer for the right number of housing starts?
A lot of normative notions about what the right housing mix should be are faulty. The notion that high density is the correct future may take a beating as energy prices skyrocket. Alternative assessments suggest multi family units actually consume relatively more energy per unit. http://www.newgeography.com/content/006840-high-density-and-sustainability
National housing market control might make it even harder to find investment opportunities.
Stakeholder not “shareholder “. D’oh
Funny, I understood it as essentially our current semi-share, semi-stakeholder capitalism of today, as it transitions away from honest, explicit shares, and more towards mob-determined squeaky wheel “stakeholders”. Who don’t actually want a real stake, which costs them money to buy shares, but want control.
Securities are going to get hammered when every corporate manager feels entitled to throw away investors money on their pet social causes.
I don’t see this happening. I do see some corp mgrs making bad internal decisions, then trying to cover them over with PC/ woke approved PR. But the internal problems first (like IBM; like AT&T; like Nokia – sold to MS).
The theory of market capitalism says they will be hammered. It also says countries like Japan can’t keep borrowing “forever” … But real testable theories need a time horizon, so say over the next 2 years; or 5 years; or 10 years.
I don’t see it in the next 10 years, it’s not likely; less than 10% any of the current top 100 companies by revenue go bankrupt because of “pet social causes”, like BLM for sports.
But losing 50% revenue? That does sound like getting hammered. ESPN / Disney? Get Woke, go Broke. That’s more likely.
Arnold, frankly I don’t understand why to waste time on information provided by WSJ reporters that summarized data processed by NAR. We know that the original data is at best dubious (as you say in your first point). Yes, your readers may entertain themselves a lot speculating about the meaning of the information provided but there are too many blanks for any serious idea.
For the world economy and each country’s economy (and I’d say for each “community”‘s economy), both the stock and the flow of saving as well as their investment are important issues. One of the most relevant changes in the past 50 years, related to the extraordinary expansion of financial intermediation everywhere, is that some families’ savings are used by other families to consume, so the rate of savings of the sum of the two sets of families is much lower than the savings of the first group. Also, should we consider the spending on housing as consumption or as investment? what about other durable consumption goods? does it make any difference?
Arnold, very much related to the second paragraph of my comment, I have just read this
http://charleshughsmith.blogspot.com/2020/11/the-one-chart-that-predicts-our-future.html
based on work by some Brookings guys.
It’s funny because if we were to believe Charles Smith’s inference from the Brookings paper, then we could conclude that the U.S. political system has been converting to China’s system. In the latter, the huge concentration of savings in the large state-owned banks has been providing the Party and the government with significant control of the economy. Chinese families have trusted their savings to the government. In the U.S., American families would have trusted their savings to a few private “capitalists” that work closely with politicians, in particular, D-politicians (within the Party, E. Warren would represent the faction that wants to take direct control of the “capitalists” business).
Btw, Arnold. If it were true that the changes in financial intermediation over the past 50 years would have been critical to many economic and political developments, it’d show how irrelevant standard macroeconomics has been to understanding both the world economy and the political order. And how much waste people like Tyler Cowen and Scott Sumner have produced.
“Apartment rents are probably down, at least in places like NY and SF.”
For reference, I just renewed my lease on a 1-BR downtown Boston apartment for 17% less than current year.
I have read that suburban rents have not fallen and may even be up slightly. Demand has shifted away from downtown areas to places with more space and yards.
With upper middle class people realizing they can work remotely, prices in my Colorado ski town have gone from the normal crazy to batshit crazy. Be interesting to see if this holds up after they live through a couple of winters (very different as a homeowner than as a visitor) and start to miss the cultural life of the big city (once things get back to normal).