It seems like just yesterday when residents were fleeing the urban core for the suburbs, contractors were available for projects and the open airy floorplan was in vogue. Then overnight, the market pivoted, again. Moving vans are heading back to the cities. You feel fortunate when you can convince a skilled carpenter to work on your house. You dream of adding another room with a door. Changes are happening fast.
When I started in this business, a qualified real estate professional needed to be able to speak coherently about the current mortgage rates, the local job market, school districts and commute times. Today, I need to be well-versed on the impact to real estate from climate change, COVID related supply shocks and skilled labor shortages. Navigating the ever changing landscape to successfully complete the purchase or sale of a home today is complex, time consuming and as of late, unpredictable. Let’s look at a few recent developments that have been impacting home sales.
There’s a lot to unpack here, but the growing severity of California fires is affecting everything from insurance to the availability of building materials. As our communities have pushed further out to the suburbs, more of our housing stock is in areas prone to fire damage. Given the greater regularity and severity of fires, homeowners insurance is not only more costly but in a growing number of cases, not available. If there is no insurance on a property, there is no mortgage financing available. One of the first actions I recommend any buyer take on a property of interest is to determine whether there is a company willing to insure it. And don’t underestimate the amount of insurance necessary… the cost to rebuild in an environment of scarce labor and materials may startle you. Although it hasn’t happened yet, I would not find it surprising to learn that housing prices begin to soften in areas of extreme climate risk.
COVID Supply Chain Issues
If you have purchased anything for your home recently, you already know that finding materials in stock is not easy. I am in the middle of a major home renovation and have found that a 3 to 6-month lead time for certain appliances is the rule, not the exception. Where I see the impact of this on real estate transactions is in the buying process. Homes that have been recently remodeled and are in excellent condition sell at abnormally high premiums vs. those that require work. I believe a major factor at play is that buyers are willing to pay a higher multiple for the certainty of completed improvements that would otherwise be subject to unpredictable pricing and timing.
We can probably all point to a recent experience related to the shortage of qualified personnel. “Help wanted” signs are everywhere. The latest example in my world is the dwindling supply of home appraisers. The cost of a typical appraisal has more than doubled in the last year as retiring professionals are not replaced with new practitioners. This is driving longer lending processes and therefore longer escrow periods. It is not surprising that the perceived premium from “all cash” offers (no appraisal necessary) has never been higher.
As offices sit vacant in our urban core, neighborhoods are buzzing with activity. Homes are performing double duty as workplaces and shelter. As more and more companies announce that their workers may never need to come back to the office, it’s becoming more apparent that COVID related housing trends are not just a fad. Homes with more space, multiple rooms and outdoor living continue to command a premium.
So, what does all this mean? Our local market remains competitive for the best properties, but the process of buying and selling has become longer and more costly. The extra investment by sellers to freshen up a home prior to market will be well rewarded in the final sales price. The extra effort in putting together the best financing package by buyers will be favorably received in a competitive bidding situation. In short, anything in the process that will add certainty in this environment will bode well for both parties. It’s never been more important to work with someone who can confidently help you navigate the bumpy ride.