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It is abnormally hot for fall as mortgage rates break records. The coronavirus pandemic has remade what’s normal, and homebuying is no exception. Typically, the real estate market tends to hit the brakes in the fall, as kids return to school and families juggle work, extracurriculars and the upcoming holidays.
But that’s not what’s happening as we head into the second week of September, closing in on the official start of fall: Sept. 22. Homes are getting snapped up faster as home values rise and mortgage rates continue to slide.
“Home sales are currently stronger than they were pre-pandemic and show no signs of slowing,” says Cheryl Young, senior economist at Zillow. “Demand is being fueled by low mortgage rates. We’re also seeing deferred home buying as the economy and housing market pressed pause in the spring.”
The median listing price on single-family homes grew for the 17th straight week, jumping 10.8% year-over-year, which is the most rapid growth in over two years. Meanwhile, mortgage rates have broken new records. The average rate on the 30-year fixed-rate mortgage is now at 2.86%, and the 15-year hit 2.37% this week—both all-time lows, according to Freddie Mac’s recent Primary Mortgage Market Survey.
As the number of homes for sale continues to shrink, new listings are being snapped up quickly. They’re lasting 12 fewer days on the market than they were 12 months ago, according to Realtor.com’s latest housing trends report.
“With unusually high buyer interest this late in the homebuying season, buyers are moving much faster than this time last year to beat out competition and lock in low mortgage rates. This means homes are sitting on the market for much less time, despite notably higher price tags,” the report’s author, Realtor.com economist Danielle Hale, wrote.
Whether this buying trend will continue is up in the air as supply is lagging behind demand, which appears to be the only real obstacle. What’s holding homebuying back now are chronically low levels of inventory, Johnson says, and stiff competition for homes that do come onto the market.
New listings dropped 12% during the week ending on Sept. 5, which spells trouble if construction doesn’t pick up. This is especially harmful for first-time buyers who are competing against a slew of bids for the same listing.
“Multiple offers are quite common for starter homes,” says Lawrence Yun, chief economist at the National Association of Realtors (NAR).
Why Is Homebuying Taking Off Now?
Experts can’t point to one reason why homebuying has defied expectations as we face a still uncertain economy and elevated levels of unemployment. Certainly, the Federal Reserve and GSEs, Fannie Mae and Freddie Mac, helped keep the market liquid so lenders could continue to do business as well as contain mortgage rates. But why is there such a big appetite for real estate now?
Low mortgage rates? People fleeing cities? The need for more space as working from home and remote learning become realities? Dormant buyers who were waiting for the pandemic to subside? It’s likely a combination of a few or all of these factors.
“Homebuying is currently on a tear, but much of this is likely due to the fact that those looking to buy during the spring homebuying season had to wait as the pandemic took hold,” Young says.
One influence that is undeniable in the recent buying spree is the rise of the ultra-low mortgage rate, says Yun of NAR. Buyers who were held back from buying during the spring watched mortgage rates drop. Now that businesses are opening up and more people are finding ways to live with the coronavirus safely, the homebuying hesitancy has subsided. Low rates are just adding extra impetus to what was already a motivated buying segment.
“Low rates are the key reason for the robust homebuying, despite the still-high unemployment rate,” Yun says. “Those with secure employment are taking advantage of the low interest rates.”
The circumstances surrounding the pandemic have created homebuyers, as well, says Bill Cosgrove, president and CEO of Union Home Mortgage. People are using their kitchens for office space and spare bedrooms for classrooms, so many of them are looking to upsize. Not only do they want more square footage, but they want to get away from urban cores so they can also have outdoor space.
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A new report by youth marketing experts YPulse titled “No Place Like Home” provides significant new insights on how the Covid pandemic has changed how Gen-Z and Millennials view the homes. The following statement summarizes key findings: “As young people look to their spaces as mental health retreats, at-home items and services that comfort, declutter, or foster a feeling of escape that from the outside world will resonate.” The opportunities for marketers are clear and will be elaborated on below.
YPulse previously observed that millennials have homebody tendencies, with a majority preferring to go to a café or watch Netfix at home as opposed to going to a party on a Saturday night. A recent survey confirms that this sentiment was present even prior to the pandemic, with, “…67% of 19-37 year olds telling YPulse in January this year that they would rather stay in on the weekends than go out.”
Both Millennials and Gen-Z (widely regarded as the most stressed out generation in history) are seeing the home as a refuge from the outside world, as many have felt stressed by issues such as climate change, the 2008 recession, student debt, and now Covid-19.
Shifts in How Young People Use Their Homes Will Create Opportunity
With a strong majority of Millennials and Gen-Z having the goal of owning a home, how they use that home will be of interest to markets in many product categories. YPulse points out several Covid-related shifts in emphasis among the younger consumers in terms of how they will use space, including heightened demand for:
- Fully equipped home offices (seating, lighting, desks, temperature control), with many indicating a preference to work at home even after the pandemic.
- Home fitness space and equipment, with 63% indicating that when the pandemic ends they would prefer to exercise at him.
- Private outdoor space, with many preferring having their own private space even after Covid passes as opposed to using public parks for this purpose
- Cooking supplies and well-equipped kitchens. While the demand for eating out does not appear to have done away, there has been an uptick in the number reporting that cooking is a hobby.
- Play space for children; this has been spurred by many dealing with home schooling while trying to keep them busy via fun and productive entertainment.
Renewed Emphasis on Comfort, Simpler Design, and Home Improvement
YPulse reports that Covid has led to 80% of young people self-quarantining and, 83% reporting that their home has provided them with comfort during the pandemic. In addition, 71% actually indicate that they actually enjoy being able to spend additional time at home. This “shelter from the storm” as YPulse puts it, brings comfort to young consumers, who describe their ideal home as being comfortable, cozy, safe, calming, and quiet. Accompanying these feelings is a desire for simplified décor that is calming and reflects a less cluttered environment. The report also suggests that “Cozy, homier ads are more relevant than ever to young consumers,” advice that would appear very sound going forward.
The “comfort” element of the home is making young consumers more likely to indicate they want to engage in do-it-yourself home improvements. The report indicates that 64% of young consumers say they are more interested in-home improvement than before Covid. DIY may be especially important in the short-term, as these young consumers look to make improvements while limiting expenditures, and may become a longer-term trend as well.
A Shift from Urban to Suburban and Rural Living
The report observes that while about 3 million Millennials have moved back with their parents during the pandemic, a majority live on their own. Prior to the pandemic, 34% of Millennials and 8% of Gen-Z consumers owned their own homes, with and additional 46% of Millennials and 9% of Gen-Z being renters. Clearly, it is a goal of both of these generations to own their own home in the future, with 85% of young people reporting that they plan to eventually buy a house.
Once the pandemic ends, this desire to should produce good times for the housing market. Assuming a reasonably healthy economy and no dramatic changes in federal tax code, it remains likely that once the crisis passes that there will a boom in Millennial wealth, leading to an even better housing market.
Ypulse’s report indicates that 48% of those ages 19-37 who rent or live with parents are putting off home ownership because of Covid. So where will they live? A notable trend that is that more urban Millennials are considering or planning a move to a suburban or rural area. YPulse’s data shows that the top reasons for this sentiment are lower housing costs, low crime rates, being close to friends, being able to afford a larger home, and having more outdoor space. Unless the significant violent crime increases taking place in many major cities can be held in check via policy changes, it would appear that this trend could be exacerbated as real estate experts are already reporting exodus from many major cities as a result of increased crime and high tax rates. As YPulse’ report states, “Moving out of cities is also becoming a dream as some plan for a new future.” If more work remains remote post-Covid, this may become a very realistic dream for many young people.
For example, As the pandemic devastated New York City in March, schoolteacher Ali Iberraken and her young family rushed to relocate outside the city—way outside the city. They left their two-bedroom Brooklyn brownstone for an Airbnb in the woods of Virginia’s Shenandoah Valley. The Iberrakens had planned to decamp for three weeks but ended up staying for two months, not least because they loved the peace and beauty of the bucolic environment.
“Virginia made me realize that’s exactly the lifestyle I wanted,” Iberraken said. “We tried to stay as long as we could, and upon coming back to New York, it was such a big difference. Now we’re going back to the same old playground in 90-degree heat and horrible humidity.”
She’s not the only one pining for a rural escape during the COVID-19 crisis. A spate of recent headlines such as “Coronavirus may prompt migration out of American cities” and “Americans flee cities for the suburbs” suggest a major demographic shift is underway—a shift that could have profound consequences for housing prices and the broader real estate market.
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Housing providers have special considerations when it comes to their residents. How they can protect them? What precautions should they take? How they can insure the building is protected and sustainable. This FAQ answers those questions.
What properties are covered by the federal eviction moratorium?
All rental properties are covered by the CDC notice(link is external). NAR has published a one-page summary(link is external) of the order issued by the CDC. It does not apply to residential properties in locations with an eviction moratorium that provides the “same or greater level of public-health protection that the requirements” of the order. It also does not apply to American Samoa.
When did the federal eviction moratorium begin?
The moratorium began on September 4, 2020. After that date, a housing provider may not evict for failure to pay, any tenant who submits a signed attestation, per the Notice through December 31, 2020.
Is rent that accrues during the eviction moratorium forgiven?
No: The moratorium prohibits housing providers from evicting, but does not forgive the rent that is due. In fact, for tenants who have attested and received the eviction moratorium, a property owner or agent may charge penalties, late fees and interest, per the lease.
How can the government do this? Isn’t it a 5th Amendment takings?
The order by the CDC is based under Section 361 of the Public Health Service Act, and is designed to “prevent the further spread of COVID-19.” Legal challenges are anticipated.
Is there an appropriate way to request past due rent without having to do 30-day notice to quit?
An owner can certainly make a request for rent payments that are due during the eviction moratorium; owners may also enter into repayment agreements with tenants during the moratorium, making clear the amount due and the terms for repayment.
If a tenant doesn’t pay the full rent on time, can I send a late payment notice to the tenant?
Yes, but with some caveats: the moratorium prohibits initiation of eviction proceedings but it does not prohibit an owner from sending the tenant a notice that the rental payment is late or incomplete. Among other things, if an owner wants to initiate collection or eviction proceedings after the moratorium ends, it is wise to have a copy of these notices on hand, making clear that the housing provider documented the nonpayment and provided information to the tenant. If you send such a notice, you should consult with your legal counsel about the wording. Among other things, the notice needs to indicate that it is not itself a notice of eviction.
What other steps should I take if a tenant doesn’t pay the full rent on time?
In addition to providing a notice of nonpayment, many owners are asking tenants to execute a formal rent forbearance agreement. These documents constitute a contractual agreement between the housing provider and the tenant, identifying the amount of rent that is unpaid and providing terms for repayment in the future. If a tenant has a good rental history in the past, it may be desirable to work out terms for repayment after the moratorium, rather than go through the effort to evict a tenant now and try to re-rent the unit. From the tenant’s point of view, many are eager to enter into a forbearance agreement that establishes a mechanism to pay accrued rents to avoid having to pay all accrued but unpaid rent in a lump sum at the end of the moratorium period. A forbearance agreement clarifies what the tenant owes and when it will be paid, and provides remedies that the housing provider can exercise if the repayment terms are not met. Again, housing providers need to consult with legal counsel to make sure that the forbearance agreement complies with state and local landlord/tenant laws in general.
Can tenants pay partial rent?
Some housing providers may want to enter into a rent discount agreement with tenants, under which the tenant agrees to pay a discounted amount of rent on the regular due date each month. Many tenants, even if they recently lost their job, will continue to receive some income from unemployment compensation and other sources and would be willing to pay some portion of their current rent to avoid facing a lump sum at the end of the moratorium period and possible eviction thereafter. Likewise, many housing providers would prefer to receive at least some portion of their rental income on a current basis, rather than no income at all and face the cost and uncertainty of eviction in the future. Again, any such discount agreement should be prepared by legal counsel familiar with state and local landlord/tenant law requirements.
If tenant does not pay rent during the eviction moratorium, when can I start to charge fees or penalties for nonpayment?
Immediately. Unlike the previous moratorium in the CARES Act (which has expired), the CDC notice allows a property owner to charge late fees, penalties and interest on any rent that accrues during the eviction moratorium period (September 4 – December 31), per the terms of the lease.
Am I allowed to initiate eviction for cause (criminal activity, etc.) during the eviction moratorium?
Yes: the moratorium only applies to actions “for nonpayment of rent or other fees or charges.” A housing provider can initiate a “for cause” eviction if a tenant has breached some other lease provision – such as committing a crime or assault on another tenant – that does not involve nonpayment of rent or other charges or fees.
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