Emily Zhu 7/13/2020
The coronavirus pandemic has sent the stock market tumbling and the housing market has been no exception. We are at peak uncertainty. In spite of what you may think, the coming months might actually prove to be a better market for first-time buyers to purchase real estate. The combination of lower interest rates and softer real estate prices should be quite alluring. Yet, there are many buyers who are sitting on the sidelines. The lack of actual deals would be based on a combination of: cities or the burbs; lack of proper price discovery and some buyers find it tougher to qualify for mortgages.
Cities or the Burbs
Newspapers seem to be creating more hysterical articles about the death of urban real estate, and it is not worth diving in to get you hooked. It is overblown. The crisis has prompted a flurry of fantasies about abandoning the cities altogether. Migration from urban cities like New York and San Francisco would empty out. Safety, security, and space seem to have won out over cost of living. At least for now.
Well, I am hearing people are buying across Vermont, Westchester, the Hamptons, Upstate New York and Connecticut. Beautiful farms, wooded homes, and we’d all be better off at least a little farther apart. Even New York’s governor, Andrew Cuomo, has described New York City’s density as responsible for its suffering. I am also hearing about properties selling very quickly at markets that had suffered for years and are having their moment in the sun. I am happy for sellers. I am quite curious about buyers. They don’t seem to be questioning values. They are buying homes that are far less than where they normally live. Low rates make the monthly costs look pretty exciting for buyers. However, these markets have long cycles and deep decline.
For suburban sellers, it can hardly be a better time than now to trade. Some will ‘test the market’, and a few may get close to their aspirational pricing. But will the suburban housing end up overpricing? Possibly. The courageous sellers who has decluttered and gotten educated on the buy-side of the equation will have their time to buy in Manhattan real estate. Suburbs may win the battle, but I don’t see them winning the war.
Does the Current Mortgage Rates Mean It’s Good or Terrible Time to Buy A Home?
Hundreds and thousands of Americans have experienced financial instability or total job loss because of the Coronavirus outbreak. This begs the question: is now a good time to buy? Some of the lowest mortgage rates in 50 years have caused a spike in potential buyers. The current state of economy and efforts from the government to slash interest rates in order to keep buyers in the market appears to be working, driving people to continue to apply for mortgages and make offers on homes. If you have the cash on hand and a flexible timeline on closing, there is no reason you shouldn’t take advantage of low mortgage rates. The coming months may be particularly beneficial for first-time home buyers, who won’t have to deal with added disadvantage of trying to sell their current home. Weigh the pros and cons of the market and examine your situation on an individual basis, real estate investment may be the silver lining of the pandemic.
All that being said, there are important things besides mortgage rates to consider. One of the looming questions heading into the third quarter is how the pandemic will shift buyer preferences. There has been a spike in search traffic for apartments with outdoor spaces and home offices. “People are more attracted to a property that no one has ever lived in before” said Katie Zhou, the Sales Director at New Empire. The shift could be a boon for the new development market. Units in larger buildings have been a particularly hard sell because concerns over crowded elevators and shared lobbies.
Price discovery is a fancy way of saying “knowing the value of an asset” and it is happening all the time in the stock market. Houses is a much less traded and liquid asset, it’s harder to come by. And then add in a global pandemic, one can see the prospect of a near-term housing market recovery remain unclear. New York Times will tell you the median sales price fell 17.7 percent compared to the same time last year, some of you will agree. Many more are simply wondering if there is more room to fall. The notion is that we need a better sense of where the market is right now in a measured, thoughtful way. I cannot tell you how to time the market perfectly, but the veil of price discovery will start to lift when the closing prices appear to be lower on co-ops. That’s when everyone will jump in. I will tell you that right now is an amazing time to buy.
For one, to conclude the sales prices drop sharply since the beginning of the pandemic is inflammatory. There were so few deals over the last 100+ days (March 16 – June 22) that a few outlier numbers are not sufficient add up to a market analysis. For two, the decision to count the entirety of shelter-inplace regulation as one day in the listing system we use for counting Days on the Market could be misleading. Buyers are inherently wanting to believe that prices should be lower, and sellers the opposite. This ‘days on the market’ data point, if simply let to be the full amount of time on the market, would create a psychological barrier between buyers and sellers. Counting the Days on Market in and of itself does not create skew data, but the impact would be far less important than choosing the other direction.
The variables are sale price and mortgage rates, along with monthly fees which vary from building to building. We are among the most qualified buyers out there in the US. Banks need to lend, and New York buyers are a great pool of yield. I know the last few months feels like a decade, but right now you are going to either trust that it’s good enough information or you will wait. We have gotten through a gauntlet after which even many co-op boards will be open to accepting lower price levels in their building. The planets could not line up better for you. Don’t be greedy, my friends. What are you waiting for?