Healthy and Happy New Year to all my readers!
Unless you haven’t read a paper or watched the news, we all know that real estate went ballistic between the third quarter of 2020 right through 2021. Anyone owning a home saw their appreciation excel by 19.7 percent (13.61 percent inflation-adjusted) through July 2021 as per the S&P/Case-Shiller seasonally adjusted national home price in index and in some areas even higher.
This was the largest year-over-ear annual growth ever recorded. Of the 20 major cities, according to Standard & Poor’s, Phoenix had posted the highest increase of 32.41 percent increase as of July 2021, followed by the top six cities of San Diego (27.79 percent), Seattle (25.5 percent), Tampa (24.41 percent), Dallas (2.66 percent), Las Vegas (22.45 percent), and Miami (22.2 percent). Even NYC posted a 17.86 percent increase.
The Mountain region had the highest house price increases of 25.57 percent year over year to July 2021, followed by the Pacific (22 percent), New England (20.84 percent), and South Atlantic (20.16 percent), according to the Federal Housing Finance Agency.
As per the Bureau of Labor Statistics, a certain number of industries in the private sector saw workers’ pay increase 4.6 percent, adding to those who were buying. Millennials comprised 67 percent of mortgage applications from January-August.
It’s very sad that we were hit by the Corona-19 pandemic and the variants that have occurred since. However, this unfortunate situation made more than 500,000 individuals and families leave New York City to go out east to Long Island, down south to the Carolinas and Georgia as well as westward to remove themselves from the crowds and afford them more space and work from home environments. Most major cities throughout the U.S. had very much the same occurrences.
While I could see the market cooling a bit in 2019, the pandemic in March 2020 and its inherent fear and deaths that followed caused our government to shut down businesses from March-June 2020. However, this created an amazing pent-up demand that exploded and catapulted back like it was on steroids. This fueled sales way beyond what experts or anyone else could have expected. Last year saw even greater activity and appreciation, as shown, in the previous figures.
Who could have ever predicted this quite amazing feeding frenzy that occurred? Also, with the government providing serious stimulus money for so many, this gave additional impetus for those who could afford to go out and buy. Many came to the realization that the safety of the suburbs and being outside major cities was the most advantageous and beneficial. The timing was spot-on to come to that decision to make the necessary move.
The pandemic created the increased demand, coupled with the historic lowest interest rates, caused the housing inventory to be reduced much faster than normal. In effect this was responsible for many bidding wars and higher-than-normal price increases and appreciation over the past 18 months.
This year will also be excellent, but unless more homes come onto the market, sales will be reduced. However, the limited inventory being chased by the still strong demand and still low interest rates will again increase prices and appreciation, but probably not as aggressively as in 2021. Unless rates go up enough to cool off demand, the market will still continue to be strong. However, due to price appreciation, even with our low, low rates, it has caused those who were trying to purchase either to leave the market or move to those states where homes are much more affordable.
This unfortunate situation will continue as rates increase, buyers’ habits change and other possible variables pop up to cause a slowing in demand. The pandemic has thrown a serious monkey wrench into the process but also caused it to come roaring back.
People will continue to purchase as they did back in 1981, during a very severe recession, when rates were as high as 18.5 percent, but prices were at rock bottom. But those who bought, refinanced years later and if still remain owners, probably have had the greatest appreciation.
How long and how far the market will run is unpredictable. Builders across the country are not even coming close to constructing new homes fast enough to meet demand; sales will moderate and prices will increase but at a slower pace over the next few years. The only thing that will make a marked difference will be much higher interest rates, which will normalize demand and over time allow inventory potentially to increase. However, I do not see prices crashing anytime in the near future, but increases will be more in keeping with the inflation rate but avoid the double digits we experienced in 2021.
Philip A. Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck. He has 40 years of experience in the Real Estate industry and has earned designations as a Graduate of the Realtor Institute (G.R.I.) and also as a Certified International Property Specialist (C.I.P.S). For a “FREE” 15 minute consultation, a value analysis of your home, or to answer any of your questions or concerns he can be reached by cell: (516) 647-4289 or by email: Phil@TurnKeyRealEstate.Com Just email or snail mail (regular mail) him with your ideas or suggestions on future columns
