Will Normalcy Ever Return to Housing?
With the COVID fueled home buying frenzy now into its second year, it is no secret that homeowners have benefited from an unprecedented run up in values… close to 15% in our local market in the last 12 months alone. In the near term, the continued lack of available inventory should keep competition tight for those properties in prime locations and excellent condition. Yet, selling a home in today's market is not without its challenges.
A tour around any neighborhood in our area highlights the situation. While the limited number of “for sale” signs come and quickly go, porta potties can be found on every block. During a period where other outlets for discretionary spending have been limited, owners have turned their attention to home improvement. As a result, we are experiencing a severe shortage of home improvement professionals, building materials and other resources normally used to prepare a home for the market. In fact, one of my first calls once I sign a new listing is to schedule a home stager and painter… the best ones are booked out 2-3 months. In short, expect things to take longer and cost more to get your home on the market. The silver lining is that rising values will more than compensate you for the higher costs.
On the buy side, the key question seems to be “when will things cool off?” In my experience, housing prices react slowly to market forces… homes are an illiquid asset. An uptick in interest rates is widely expected as early as next year and will have some impact at the margin, but I do not expect it to be dramatic. In our market, the main driver of rising values has been the inflated currency coming out of the stock market. In the last 12 months, the S&P 500 has risen nearly 40%. Housing has become cheaper on a relative basis for those buyers who have a larger portion of their net worth in the stock market. Should rising rates, inflationary pressures or a change in sentiment cause a substantive and prolonged down trend in the stock market, things will slow down.
The bottom line is that there is no historical precedent for the housing market gyrations we continue to experience. If I had all the answers, I would be lying on a beach somewhere relaxing and gazing at the ocean. In any market, my advice is always the same: Stretch to buy the best properties in the best locations for your budget, invest with a horizon of at least 5 years, pay down your mortgage, keep your home updated and in good condition and do not hesitate to make a move when your life takes you elsewhere. Whether or not you miss out on a little appreciation or avoid a value decline, your home is as much about enjoying your lifestyle as it is an investment.
If I can be of any assistance in planning for a future purchase or sale, do not hesitate to contact me. The longer the lead time available to prepare, the better to maximize your success.