As national median listing prices rose and demand for single-family properties skyrocketed this summer and into fall, some economists stopped referring to real estate as the “bright spot” in an extremely tough year and began warning the current situation is “unsustainable”. Danielle Hale, chief economist for the notoriously optimistic Realtor.com, led the pack, saying, “It’s difficult to imagine that the housing market will be able to sustain the frenzied demand we are currently experiencing.” She went on to predict demand for housing would “continue to exceed the number of homes available for sale” based on listing traffic in August.
What does it mean when an economist says the market is unsustainable? In Hale’s case, she essentially means that at some point the demand must slow. Usually, this happens when prices rise out of the realm of accessibility for the majority of buyers. At that point, sellers are no longer “in the driver’s seat” and must lower their prices in order to continue to sell homes.
However, at present, that does not appear to be on the horizon. While inventory dropped 36 percent nationally in August, home prices rose 10 percent. That made the national median listing price $350,000, and those houses were selling almost a week faster than they were during the same time period in 2019. Cities like Philadelphia, Boston, and Providence, Rhode Island, all posted double-digit listing-price gains in August as well. Overall, the northeastern United States reported a 19 percent jump in prices year-over-year.
For many buyers in today’s market, the search for a new home is not catalyzed by a desire to move permanently. In fact, many of today’s buyers are actually seeking second homes, which has dramatically added to the population of luxury renters in attractive areas like Los Angeles, which are full of “funky” beach houses and high-end rentals hoping to fit the bill if picky buyers find themselves unable to land a “winter home” of their own. For example, one Tribeca resident described his decision to rent a “modest” modern property in Los Angeles from January to June 2021, allocating $20,000 a month for the rental. He described his reasoning, saying, “My work has become remote until further notice and my [two young] children won’t be attending classes in person anytime soon.” Unfortunately for that particular renter, properties like the one he’s seeking are going for closer to $125,000 a month in Malibu, where many New York City residents hope to flee for the winter.
“There’s a lot of demand and not a whole lot of supply,” said Sandro Dazzan, managing partner for The Agency in Malibu. He described the majority of Malibu rentals as “more funky beach houses” rather than “designer homes”. This makes them less ideal for families hoping to work, school, and play in their seasonal digs. Closer to Tribeca, the Hamptons is experiencing unseasonal demand as city parents look to move to the less-densely populated area for the “off season” and even enroll their children in local schools.
Andrea Ackerman, a local broker, warned the “off season” may not be so off this year. Property owners are “putting very high prices on the off-season because they know people will pay to be here,” she said. Many Hamptons homeowners are putting their houses up for rent for the first time ever because the offers are simply too lucrative to resist.
Are you renting out winter homes?
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