As the country began in January 2012 to recover from a prolonged period of real estate doldrums, Joey launched a series of E-reports on market trends for special individuals in her database. The E-reports represent an effort by Joey to distill and present in easily understandable form marketplace developments explained at greater length and often in more technical language in the Wall Street Journal, the New York Times, TREND reports and charts, company publications, and the like. Each issue of this year's "Real Estate Market Watch with Joey" is reprinted here on her website as soon as Joey writes it.
REAL ESTATE MARKET WATCH WITH JOEY
22 MAY 2021
Joey’s Perspective on Our Current Torrid Marketplace
Can I ask you to share your professional view of today’s frenetic bidding wars?
Certainly. The market is badly overheating, and it’s becoming increasingly dangerous for buyers seeking to purchase a new home right now. Sellers, by contrast, are greatly profiting from the severe imbalance between supply and demand because house prices are increasing significantly throughout the country.
I will ask you to elaborate in a moment. But first, are we in a new housing bubble?
As a veteran Realtor with thirty-two years of sales experience under my belt, I am personally hard pressed not to term today’s craziness a degree or two beyond even that at the crest (2004-2006) of the last housing bubble. Since I just used the words “last housing bubble,” let me note that while everyone—in retrospect—agrees that we experienced one in the first decade of the 21st century, there has been some question about what to call the present-day dizzying rise in home prices.
The chief economist of the National Association of Realtors, Lawrence Yun, has gone on record to say this “is not a bubble.” It’s simply a “lack of supply.” His reasoning seems to be that, previously, we had a housing bubble because of loose credit and risky mortgage products. Now we don’t have those problems; all we have is record-low inventory—and also, I will add, record-low mortgage rates, a pandemic-era slowdown in new construction starts, and the desire of home-bound homeowners for more space since working remotely has taken off.
Do these differences between what caused home prices to go nuts last time and what is causing them to go nuts again now really matter? The bottom line is that housing costs were dramatically soaring then, and they are dramatically soaring again presently. In between these two highpoints was a crash (homes in my area lost 20-30% of their value) and a years-long period of sluggish home sales at unremarkable prices. In my sales territory, luxury properties that sold for $1,500,000 or $1,600,000 in a heartbeat during the last bubble routinely struggled to get $1,000,000 for well over a decade afterward. People suffer when they buy high and sell low later.
So, technically, this is not a housing bubble?
That is what pundits are claiming, for now anyway. But last time, remember, during the housing bubble itself, pundits said “no bubble here” also. It wasn’t until the collapse of home prices that everyone saw that there had been a bubble here—and that now it had burst!
Will home prices, this time, keep rising indefinitely? I don’t think so because, generally speaking, what goes up eventually comes down. For me, this is a case of “fool me once” versus “fool me twice.”
Currently our national inventory (houses for sale) is about one million homes—an all-time low. For comparison, it was four million in 2007. Our present situation consists of a truly severe imbalance between supply and demand. What could change it on the supply side? New construction, for one thing; builders are building as fast as humanly possible in the U.S. these days. Also, as vaccination rates rise and COVID-19 cases decrease, previously reluctant would-be home sellers may finally deem it safe to list their properties. A third factor that I think about is the leading edge of the baby boom generation. These people are in their seventies now. Over the years, I’ve helped a great many homeowners at this time of life to downsize from their big home of many years to a smaller residence—typically, a townhouse or condominium—or to transition into a care community. This trend will continue—and accelerate as zillions of aging baby boomers pull the plug on home ownership.
What could dampen demand in the future? Buyers could get priced out of the market or spooked by the crazy current conditions. Already the exploding cost of lumber has added several tens of thousands of dollars to the cost of an average new single-family home, and out-of-control bidding wars are escalating the buy-in cost of resale homes. In addition, mortgage rates could rise, another recession or pandemic could occur, some unpredictable national or global crisis might happen.
How crazy are current conditions in your experience?
Let me give you an example. A new buyer of mine became interested in a petite split-level home on a sweet cul-de-sac in a premier neighborhood. At $719,000, the list price was reasonable. Nine instant offers drove the ultimate sale price up, up, and away—to $900,000 (for a tiny split!). Not only that: the winning offer was cash (cash almost always trumps a mortgage contingency) and had no home inspection contingency. Conscientious Realtors want their buyers to do thorough checks on the systems and components of the residence they are purchasing because they can still negotiate and even get out of the deal if they discover big-time trouble. But buyers are waiving home inspections right and left. (My company has become sufficiently worried about the implications of this trend that agents are now required to send a notification to any buyer clients intending to waive inspections; we want it on the written record that we advised them to have the house professionally checked out for their own protection.)
Besides the inducements to sellers I just mentioned, imaginative buyers are incorporating “added value” components to their offers. One is to include a love letter—that’s what Realtors call them. Since these love letters can inadvertently present serious fair housing violations, brokerage companies are trying to dissuade buyers for writing them. Another “added value” component to an offer is to sweeten the pot by, say, volunteering to pay the seller’s transfer tax for him at settlement. The tiny split’s victorious purchasers, for instance, threw that into their already more-than-exuberant offer. Think of it: nearly a million dollars for a glorified shack!
Whether we want to call it a bubble or not, homeowners purchasing now may well suffer down the road. You can bet the suffering will begin with those buyers who waived home inspections and found expensive problems waiting for them at their new residence post-settlement. They will attempt lawsuits against the agents and brokerage companies involved in their transaction, claiming that they were never advised not to waive home inspections. (This is why my company has created a new written disclosure saying that we did warn them.)
How would you sum up the dynamic we’re all witnessing?
I would refer you to the uproarious skit entitled “TikTok Wisdom.” A man hears that an apple (a real apple, not a computer) is going up for sale. The seller opens bids at $5 and announces that whoever bids the most in the next two minutes will go home with the apple. The man cannot believe his ears, but immediately a gaggle of would-be owners commences bidding. It’s intense, with one bidder pleading, “Please, this is the eighth apple I’ve tried to buy!” Another one volunteers to pay cash. Yet another offers $100 because “I’m from California and it’s the cheapest apple I’ve ever seen.” The man blurts out that he will buy it for $120, then suffers a bad case of buyer’s remorse. “Why did I do that?”
It is a good question. My view is that our job as buyer agents, specifically, is to serve as expert guides to prospective purchasers, identifying and explaining all known risks and letting our clients themselves take it from there. One of the first things a real estate agent learns in the business is that individuals vary greatly in their willingness to assume risk.
8 MAY 2021
According to The Wall Street Journal (3 May 2021), the so-called wood boom is still booming. When lockdowns were introduced last year owing to the rapid spread of SARS-CoV-2, production at sawmills in North America quickly decreased by 40 percent. Pre-pandemic levels of production were restored before the end of the year, but demand today is nonetheless significantly outstripping supply.
There are multiple reasons for this. One is that home builders are constructing new residences as fast as humanly possible. Even so, production is roughly 16 percent lower than at the peak of the last housing bubble (2006). Executives at home building companies such as Pulte say that they are successfully passing higher lumber costs on to buyers without slowing sales. Because of that, mills have experienced no pushback themselves. “So far we haven’t seen the resistance that you would expect,” Canfor CEO Don Kayne told investors. Canfor owns mills in northwest Canada and the southern U.S.
Also contributing to soaring lumber prices is the current homeowner trend toward cash-out refinancing. Historically low mortgage rates have induced a huge swath of Americans not only to refinance—but also to pocket cash at the same time without adding much to their monthly payments. Last year, the newspaper reports, homeowners took almost $153 billion of equity out of their homes, a dynamic I recall North America’s top real estate guru, Brian Buffini, warning us about at the crest of the last housing bubble. Where has the cash-out money been going? Given the virus, not into vacation travel. Rather, it’s been going into house remodeling.
In summary, sawmill owners are sitting pretty: “a glut of cheap pine trees in the U.S. South,” lumber and plywood “flying off hardware-store shelves and being bid up by home builders.” No wonder this industry has seen record earnings in the first quarter of 2021 and seems poised for more success in the second. Home builders are not complaining either, because for now they can pass increased lumber prices straight through to consumers.
19 MARCH 2021
Dynamism in the real estate industry, temporarily hobbled a year ago by lockdowns and the rapid spread of COVID-19, continues to be the marketplace’s most salient feature as we head into the second year since the start of the pandemic. It looks like clear sailing ahead, but there are several dark clouds on the horizon.
One cloud, of course, is the continuing scarcity of inventory, which is always a problem for Realtors because having some is the sine qua non of selling it. The imbalance between supply and demand, which predates the global scourge, has been greatly heightened by the uneven return of sellers and buyers to the marketplace after spring 2020’s disruption of what is typically the most robust listing season of the year. While sellers hung back, frenzied “make-up” buyers came roaring forth, determined to win one of the increasingly common bidding wars over what inventory was available for the remainder of last year. The outsize number of sales—the highest in a decade—also resulted in price gains not seen in years. But not even the assurance that they are selling at the height of an improbable housing bubble is persuading homeowners in significant numbers to part with their properties.
A second cloud is the shortfall of new construction, which was already an issue heading into 2020. Since one obvious way out of an inventory problem is to build more of it, builders have been devoting themselves to that task for some time. However, the price of materials used in new home construction has skyrocketed. The CEO of the National Association of Home Builders, Jerry Howard, reports that it is starting to throw a monkey wrench into sales of new construction.
Noting that 26% of houses on the market are not built yet, Howard foresees a possible slowdown of new construction purchases. Lumber costs have surged a spectacular 170% in a year, adding $24,000 to the price tag of a typical new home. According to the Wall Street Journal, the cost of crude oil (used in paint, drain pipe, roof shingles, flooring), copper, and other products (such as bricks, concrete blocks, insulation, granite) are all up, most to record highs. Builders naturally are trying to pass through the increased cost of their finished product to their home purchasers. The effort thus far has not been wholly successful. “Even though there still is a great sales pace, we lose customers every day,” one building company’s CEO sighed.
Feeding into the phenomenon of the cancellation of new home contracts by purchasers nervous about increasing materials costs is rising mortgage rates after a year of record lows. This constitutes a third cloud on the horizon. Currently, we are at a seven-month high of 3.24% (at 2.85%, the rates were lowest last November). It may not seem like a lot, but this incremental increase added to the recent jump in materials costs is weighing on new construction home builders and first-time home buyers alike.
Housing Market Predictions for 2021
Realtor.com expects sales growth in the greater Philadelphia area of 7% and price growth of 4.5%. That comports with the national predictions of real estate czar Brian Buffini and Dr. Lawrence Yun, chief economist for the National Association of Realtors. From my last “Market Watch with Joey,” you may recall, these seers anticipate home sales rising 5%–10% and prices appreciating 3%–5%.
12 DECEMBER 2020
Internationally acclaimed real estate coach Brian Buffini has just broadcast his annual “Bold Predictions” for the market in 2021. Joining him in this year’s presentation was Dr. Lawrence Yun, the National Association of Realtors’s Chief Economist, who summarized how the real estate sector has fared in 2020. You will be interested to hear Dr. Yun’s top takeaway:
Resilient 2020 Market Despite Covid-19
Record-low mortgage rates have combined with scarce inventory, improved unemployment numbers (down from 9.6% to 6.9%, with further drops projected), and the dramatic increase in work-at-home flexibility to release a pent-up demand to move. For some it is a short move: out of the city to a larger home in a more affordable location but still within striking distance of the office (to enable once- or twice-a-week visits). For others it is a relocation to whatever part of the country they favor; since these folks are full-time remote workers now and for the foreseeable future, it no longer matters where they are physically based.
As a foot soldier in the real estate industry, I have this corollary to append to Dr. Yun’s proposition:
Resilient 2020 Market Also Because of Covid-19
There is nothing like being constrained to spend increasing amounts of time in your home to make you acutely aware of its drawbacks, at least in the context of a pandemic. I’ve had clients this year who planned to leave Center City eventually (when their children became of school age) but who sped up the move for the sake of a large yard, plenty of fresh air, and more space—lots more space. “More space” is in both because work-at-home couples need two rooms to dub as offices and because adult children able to work remotely are electing in significant numbers to spend the pandemic in their parents’ home with them. Pools, which “half the people want, half the people don’t want” (an old Realtor adage), are becoming coveted amenities as residences increasingly double as mini-country clubs, replete with spa, waterfall, pool, and gym. All this adds up to a craving for bigger homes, more expensive homes. In short, we’re in the midst of an “upsizing phenomenon.”
Outlook for 2021 Real Estate Market
Brian Buffini quoted the Federal Reserve’s Jerome Powell as saying we can expect low mortgage rates for the next three years! Lawrence Yun added that home prices will continue to rise in 2021 because we will still be constrained by the amount of inventory available. Builders are building as fast as they can but face Covid-19-era delivery delays as well as steep price rises on such essential products as lumber, the cost of which has tripled. Taking into account today’s dynamics (cheap money, scarce housing inventory, increasing work venue flexibility, and a mass urge to move), these experts predict that home sales will rise between 5% and 10% next year, with prices appreciating between 3% and 5%.
All in all, this is terrific news for sellers. If any of you, as homeowners, wish to consider taking advantage of current and projected market dynamics by offering your domicile for sale down the road, please contact me. I would be happy to answer any questions you may have about (a) selling your house safely during a pandemic and (b) getting top dollar for your property in this highly competitive environment.
13 AUGUST 2020
Axios AM’s Mike Allen describes it as the “new real-estate gold rush.” I prefer to think of it as a new bubble in my industry, one that if we’re not careful will burst eventually in the same disastrous fashion as the last one. That last one, you will recall, was not so very long ago.
Meanwhile, however, the “gold rush” is on, fueled by record-low mortgage rates and what Allen calls the “dawning realization” of many that for some time to come our homes will “be the only place we work and play.” When last spring the spread of a potentially fatal virus closed schools, caused lock-downs, and led companies to allow employees to work remotely; many families’ priorities in a residential property started to change. Suddenly being in a large, crowded city was not so attractive while the allure of suburban living began to grow. In the suburbs a family could concentrate all its needs—for fresh air, for backyards, for home offices, for home gyms, for homeschooling—in one safe place.
Here in Philadelphia’s suburbs, where I work, listing inventory is low. Bidding wars reminiscent of the 2002-2007 era are back. To secure an in-demand house in such a competitive environment is no mean feat. One set of clients of mine landed a gorgeous estate by (a) getting there first, (b) writing a letter to the sellers explaining their attraction to the architecturally significant manse, and (c) offering $70,000 over the list price. Another pair of buyers—chastened from losing a home garnering just shy of a dozen offers—benefitted from the bitter experience when crafting a winning bid recently on another property; we settle on it next week. For a third set of clients I identified a promising property before it was multiple-listed, arranged a private viewing, and nailed the sale down before other interested parties could arrive on the scene to compete with us.
Along with a heated-up national housing market, we are facing—once again!—investors lying in wait for an opportunity to purchase distressed real estate assets at depressed prices. Senator Elizabeth Warren fears a replay of the 2008 financial crisis, wherein many homeowners lost their properties to predatory foreclosures, opening the way for private equity to scoop them up for a song. Besides being an unspeakable hardship in a pandemic on the homeowners involved, that scenario would again wreak havoc in the world of residential real estate.
8 JUNE 2020
Area real estate sales continue apace despite hurdles thrown up by prudential pandemic-related industry restrictions in force throughout our Main Line market area. Recently revised regulations issued by Governor Wolf have provided welcome relief, opening up the marketplace by permitting in-person showings, inspections, and appraisals of real property under specific conditions: (1) no more than three individuals in the house at a time and (2) submission to the listing agent of a Covid Certification as well as contact tracing information for all attendees at the in-person showing, inspection, or appraisal.
These are very significant steps forward in facilitating the restoration of customary real estate practices and procedures. Pent-up demand in many parts of the country, including ours, has combined with a scarcity of inventory both to boost new home sales and to catalyze bidding wars on alluring resale homes. How is all this happy activity happening? With extreme caution.
During the past months in which customary practices and procedures were disallowed, the region’s brokerage companies were intensely improvising new ones that could work in a pandemic. For instance, whereas in 2019 only 3.5% of the nation’s buyers bought a home without viewing it, a NAR survey revealed that in one particular week in April 31% of active buyer agents reported that at least one client put a house under contract without physically touring it first. I was one of those agents myself. The technology required to conduct sales virtually has improved so dramatically in such a short period of time that individual virtual showings, virtual open houses with a buyer-friendly “chat” feature (so prospects can send in questions and get them answered right on the spot), and even virtual sales are probably here to stay.
Settlement for a second set of buyer-clients of mine who, owing to SARS-CoV-2, were unable personally to tour their new home until the day of settlement
5 MAY 2020
Have you wondered how our local real estate market has been faring after Governor Wolfe categorized Realtors, inspectors, and appraisers as nonessential workers? Owing to the resilience and fast action of industry leaders, it’s not been catastrophic—far from it! We’re having a pretty good spring market, all things considered.
Here is what Realtors can NO LONGER DO until the Governor says otherwise:
Have in-person office or company meetings
Host in-person public open houses,
Host in-person Realtor open houses,
Personally take buyers into listings to tour their interiors
Allow colleagues to bring buyers into our own listings to tour their interiors
Allow a home inspector physically to inspect a house before listing it for the
Allow a home inspector physically to inspect a house after the listing is under
Get in-person appraisals done
Be at settlements with our buyers
That’s off the top of my hat.
Here is what Realtors in Pennsylvania's red zones ARE DOING to compensate:
Conducting office and company meetings remotely via Zoom
Substituting virtual showings of listings for in-person ones for agents and
Allowing buyers to have 30-45 days for a physical home inspection instead of
Adding a COVID ADDENDUM to all sales contracts to allow for extensions if
Helping appraisers for conforming loans with their desktop appraisals
Giving buyers of luxury homes, which require in-person appraisals, extra to
Letting buyers go to settlement by themselves, with sellers executing their share
That too is off the top of my hat.
You might imagine no sane person would buy a house into which he or she had never set foot, but you’d be wrong. SARS CoV-2 has changed real estate norms to this drastic extent already. The secret has proved to be live virtual tours—not by professional videographers, of course, since they too are in lockdown, but by sellers toting an iPhone camera around the house while providing commentary and fielding questions remotely—or else having their listing agents do so. This past Saturday, for example, two buyer-clients and I were on a live Zoom house tour along with 67 other eager agents and prospects. By the next day there were 10 (TEN!) offers.
You might also imagine that no one engaged in a house search would forego a home inspection, especially if a residence was 100 years old and, despite many cosmetic updates, had a proven track record of subsisting problems. Again, you’d be wrong. Buyers of mine lost that particular property to another set of bidders comfortable with purchasing the venerable property sight unseen and not vetted by a home inspector of their own choosing. It’s a strange new world.
Personally, I have not been in such a tight, intense market since the Bubble years. My company, Berkshire Hathaway Homes Services Fox & Roach, Realtors reports 500 new listings and 1100 closings just in April. We’ll see what happens next month as the pandemic continues its relentless march through our ranks. However, some folks really do have to or want to move, and it is in a Realtor’s DNA to desire to help them do so! Therefore, if you or anyone you know wants to explore how to sell and/or buy during a pandemic, give me shout. I’m around.
Stay safe, everyone!
19 February 2020
I have interesting news to share. It has been a little over twenty years since our tri-county area (Montgomery, Delaware, and Chester) has embarked on a massive revaluation of home values. Because county-wide reassessments are politically unpopular and wildly expensive, one is usually undertaken only as a result of a lawsuit, followed by a court ruling that current assessments in a particular county are indeed no longer equitable. In the 1990s Montgomery was the first of the three counties to initiate a countywide reassessment. This time it is Delaware.
When a county reassesses all its parcels, it values them at 100% of the then-fair market value. In Delaware County’s current case, the fair market value date being used in 1 July 2019. I should note that a countywide reassessment by law must be revenue neutral: it is a mechanism to redistribute the tax burden in the interests of fairness (over time some neighborhoods or types of houses appreciate faster or slower than others), not a way for the county and its townships and school districts to raise revenue.
Homeowners in Delaware County—listen up, all you clients of mine living here!—are being mailed their new assessments as I write. Informal assessment reviews with staff from Tyler Technologies, which has conducted the six-million dollar project, will be available to those who want them from March through mid-May. In June Tyler Technologies will submit the new assessments to the county, which will notify homeowners in July. Thereafter there will be a period in which anyone concerned about his or her assigned value will be able to appeal formally to the county’s Tax Assessment Appeals Board.
When our area went through the reassessment process two decades ago, I was still writing my newspaper column. Because the phenomenon was such a novelty, I devoted five or six columns to it. I also looked closely at any number of revaluations of properties in my market area and found them surprisingly sound. Expect a countywide reassessment to result in higher property taxes for one-third of homeowners, lower taxes for another third, and roughly equivalent taxes for the other third.