Founder and CEO of Network Capital Funding Corporation writing about trends in the mortgage industry.
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Today we face an overabundance of uncertainty. It seems that the only things we can be certain of are rising prices, an ever-weakening dollar, and, well, more uncertainty.
So what does uncertainty mean for the supply and demand of housing in America? Let’s take a look at five trends.
1. Remote work is making homes more important than ever.
When office-based employees received orders to work from home circa March 2020, most believed the arrangement would be temporary. More than a year later, it’s become clear that, for many, working from home is simply the new way of working. Upon realizing this, the question for many employees became: If my home is now my office, shouldn’t I purchase a home that is suitable for work?
Even before the mass migration from the office into the home office, roughly 30% (paywall) of new home shoppers worked at least partially from home. Now, close to half of all homebuyers plan to work fully or partially from home due to the current state of employment.
Without the anchor of a physical office, workers have more freedom to purchase a home in more affordable, desirable areas. They may also justify the investment in a home because of its dual status as an office.
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Harvard Business School found that the segment of houses suitable for remote work is in high demand. The prices of those homes have risen accordingly. This remote work effect may eventually trickle down to lower strata of the real estate landscape, affecting even homes that did not initially appear remote work-ready.
2. Home prices continue to rise.
Disclaimer: We must always view housing prices regionally. Even in the most fervent boom times, certain cities, counties and regions of the country may see lagging or even declining housing demand.
By and large, home prices are skyrocketing. The market in regions with even moderate demand has become characterized by intense bidding wars and closing prices well beyond the listing price. Informed sources such as Bloomberg insist these are not symptoms of an impending bubble. Access to credit is far more restrictive than it was prior to the previous housing bust, suggesting that those purchasing homes can generally afford to do so.
We are seeing a confluence of factors, from remote work to unique economic and social times, driving home prices upward. I’ve observed that many homebuyers envision this trend continuing and are acquiring their home before prices rise even further.
3. Demand is concentrated in specific areas.
It has always been true that a house positioned on Biscayne Bay will command a much higher price than the same house located in Detroit or Akron, OH. Nothing against Detroit or Akron, but the market is the market.
Certain areas of the country simply see greater housing demand than others, and our current conditions have only exacerbated demand in highly coveted markets. Taxation, prevailing legislation and weather are among the factors fueling demand in specific areas of the country. Though, unlike most of recent history, the most in-demand markets are not the Big Apple, the City of Angels or their metropolitan equivalents.
Major cities in Florida, Tennessee, Texas, Colorado and Arizona are leading the nation in housing demand, while the nation’s most prominent cities — New York, Los Angeles and San Francisco — are primed for real estate underperformance.
It is no coincidence that homes are generally more abundant in places like Tampa and Phoenix than they are in New York or LA. The ability to own a home at a reasonable price is a key driver in the growth of these red-hot markets.
4. Inflation is driving demand for homes.
A natural instinct in times of inflation is to purchase items of tangible value. Homes are a time-tested hedge against declining purchasing power, especially when borrowers can lock in a favorable interest rate. As the money in their savings account loses value by the second, savvy investors are rushing to the market to sink that money into a home, an investment with intrinsic (and likely appreciating) value.
With private investors purchasing one of every seven homes sold in the U.S., it’s clear that smart money is on the value of homeownership. While a home is a sound bet against a weakening dollar, I have some tough news: You are not the first one to realize it. With demand already constricted and buyers abundant, those who act quickly to purchase a home may see the greatest long-term return on their investment.
5. The suburban migration is real.
As I previously alluded to, demand for housing in cities has taken a hit. Uncertainty around city life has driven New Yorkers, Californians and other former city dwellers to flex their buying power in lower-tier cities, suburbia and the country.
Depending on your perspective and budget, you may choose to scoop up real estate in a major American city at a price you consider a steal. Or, you may see current trends continuing, choosing instead to put down roots in a more suburban or rural locale.
As migrating urbanites rush to greener, more spacious pastures, the scales of value may eventually tip back in the favor of urban real estate. With so little certainty about public health, policy and the world in general, your bet may come down to your preference and future outlook.
Conclusion
Predictions about real estate are often fruitless. With rare exception, the person who tells you if and when the market will rise or fall may also have a bridge in Brooklyn to sell you.
All we can do is observe and report. And, right now, the domestic real estate market is booming. Institutional and private buyers are locking in rates, scooping up homes and holding. As dollars inflate without end in sight, many see this as a prime opportunity to acquire a home.
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