Tag Archives: real estate

The reasons behind a low housing inventory

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Why are there few homes to purchase in the United States? Here are several reasons:

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One reason inventory is so low nationally is that many homeowners were able to lock in record low interest rates in 2020 and 2021. Mortgage rates have skyrocketed since then—the rate for a 30-year fixed mortgage reached 6.7% on March 9, nearly double that of a year ago, according to Freddie Mac. That means that homeowners who bought or refinanced with low interest rates are reluctant to sell their homes and buy another with a mortgage with a much higher interest rate.

The low inventory makes house hunting an even more painful and emotionally charged process than usual, because buyers are finding that there just aren’t that many options. They have to choose between paying a high price for the inventory that is available, or waiting—potentially for a long time.

There are factors at play that make some markets especially brutal. In January, according to Redfin, the places out of the top 100 most-populated metro areas in the country with the lowest inventory were Rochester, N.Y. (1.2 months’ supply); Buffalo, N.Y. (1.4 months’); and Allentown, Penn. (1.5 months’). Rounding out the top ten were Grand Rapids, Mich.; Worcester, Mass.; Greensboro, N.C.; Hartford; Boston; and Montgomery County, Penn…

One other reason that there’s low inventory? The influx of investors who have bought properties, including single-family homes, to rent. Investors bought 24% of all single-family homes in 2021, up from around 15-16% each year going back to 2012, according to a Pew Stateline analysis.

Add to this that many places in the United States are short units of affordable housing.

I have not seen many hints that this is a short-term problem or one that will be addressed soon. The mortgage rate issue will take time to see through. The housing crunch in particular markets may require hyperlocal policies as well as changing national conditions. Investors will continue to act in the market. The construction that is taking place is often aimed at higher ends of the market.

What I am still surprised at: how come no national politician is making this a centerpiece of a campaign? Imagine a politician promoting homeownership opportunities, new housing starts, seeking ways to boost construction, and wanting to help people achieve the American Dream. This could appeal to both sides of the aisle. This would not necessarily require major changes to national policy beyond a consistent message, helpful incentives, and a desire to help address the foundational issue of housing that many face.

Fewer than 10% of homes sold via virtual real estate transactions

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A small percentage of homes are sold without the buyer seeing the property in person:

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The National Association of Realtors first started collecting data on virtual real estate transactions in April 2020, according to Jessica Lautz, deputy chief economist and vice president of research. Virtual home sales, which are sometimes referred to as “blind offers” or “sight unseen sales,” peaked at 13% of all transactions in January 2022. By November 2022, that number dropped to 9%.

Lautz sees two drivers for virtual sales, beyond the pandemic. “It’s not only because inventory is tight, but people are moving longer distances. It might be very difficult to make your way to that home before it is under contract,” she said. “If you’re moving to a different state, the ability to quickly book a flight because that perfect home has just come onto the market may be impossible.”…

Lautz sees virtual transactions continuing, even if they’re less frequent. “If you had asked me that at the start of the pandemic, I would have thought it was a fluke. But it seems to be here to stay.”

Virtual transactions may reflect another shift, as the National Association of Realtors sees the median distance folks relocate increasing to 50 miles. “It makes sense because of housing affordability, people are moving farther out because of hybrid or remote work,” Lautz said. Being close to friends and family is top priority for so many buyers today, so they may be moving to a different area to seek that.”

Several thoughts in reaction to these numbers:

-I thought the percentage might have been higher during the pandemic. But, even then, seeing a property in person matter mattered.

-How much can technology remedy the desire to see a property in person? How long until prospective buyers could walk through a housing unit in the virtual realm? This is related to the biggest question I have: how well could technology substitute for being in a space? One matter is feeling like you were in person and could experience everything. Another matter is whether the technology allows you to consider everything. If that technology could be improved, maybe it can provide enough or all of the experience.

-Would more virtual showings increase the need for realtors or reduce them? If the main issue is technology being able to show everything about a unit, I could imagine it done without a realtor. If the main issue is about knowing a community and having connections, then the realtor continues even if the technology improves.

“Top 10 Cities with the Largest Homes for Sale”

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Analysis of available properties at Realtor.com leads to this:

Why these places and not others?

“The places that boast the country’s largest average homes tend to be clustered in higher-priced communities either near bigger economic centers or in outdoors destinations,” says George Ratiu, senior economist and manager of economic research for Realtor.com. “On the flip side of the coin, cities [with] average home sizes [that] skew toward the smaller end are located in geographically constrained locations, where natural boundaries meet high-density development.”

But that’s not all that goes into the equation. Many older communities, such as in the Northeast, that were developed for blue-collar workers tend to be filled with smaller homes. Meanwhile, newer developments geared toward white-collar commuters often offer abodes with more square footage and amenities like open kitchens, which were not popular in the 1950s. You’re more likely to find McMansions in these areas.

In other words, larger homes are in wealthier and more sprawling communities.

I imagine zoning might also play a part in this; what kind of single-family homes are possible and/or encouraged? This is tied to historical patterns and policy decisions.

How do land and housing prices factor into this? Most of the communities listed above are not in the most expensive housing markets.

Trying to sell a home outfitted for COVID life

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Doing more life, work, and school from home during COVID-19 means that some homes going on the market now have unique features:

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As the spring home-selling season gears up, homeowners who installed temporary or permanent amenities to accommodate COVID-19-era living now must navigate a maze of no-win decisions. Should they leave as-is the bedrooms converted to offices, the chest freezers parked in the garage, the bidet toilet seats warming their bathrooms, the bulky exercise equipment flexed in the basement — in hopes that buyers can look past the COVID clutter to see the bones of the house? Or must they dismantle it all, potentially subjecting themselves to additional chaos if another virus variant forces yet another retreat?

According to an analysis released in April by construction equipment firm Bid-on-Equipment, 89% of homeowners nationally have tackled home improvement projects since the COVID-19 virus began forcing many Americans to spend more time at home for work and leisure. The average cost of those projects was $3,797. Illinois residents made bathroom renovations their top priority, the analysis found…

Now, all that extra gear is part of their everyday lives and they have no intention of letting a new buyer have it, she said. Customers would rather put their top-end appliances in storage and swap in new, but lower-end, appliances, for the duration of a sale, Hood said. Then, they reinstall their coveted appliances in their new houses…

The pandemic also amplified the long-term preference for flexible rooms that can be easily be devoted to a single purpose, such as a second home office or even an isolation bedroom for a quarantined family member.

I have argued before that one of the reasons Americans tend to like bigger homes is that extra space provides options. Need a hobby room or a guest bedroom or space for clothes or a workout space or an office? That McMansion can accommodate you.

For sellers, it seems like a key would be to present the kinds of flexible options with the space that buyers might want. Do they want an office setup? A workout space? This might requires playing to some categories but I would guess that the price of the residence and the surrounding community provide plenty of clues about what potential buyers might want.

More broadly, if homes and residences need to be more flexible in the future, this could lead to significant changes. Imagine less permanent walls and more dividers. Or, fixtures, appliances, furniture, and rooms that can be more easily altered by the typical resident. This does not necessarily mean people will live in the larger equivalent of a studio apartment – or the giant kitchen/living space combo – but many rooms may also not be the answer.

Purchase your home to live in it…and consider its long-term investment potential

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In a story about how to buy a home amid a hot housing market, one expert offers this advice:

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Herbert recommended a different way of thinking about the timing of buying a house, one that I found much more comforting. “You ought to be making this as a housing decision and not an investment decision,” he said. If you’re buying a house, he advised, it should be because you want to live in it for at least five years, and ideally many more – which also will mean that even if prices fluctuate, you have a better chance of your investment appreciating over time. “The longer you stay in the house, the [less] your timing in this particular house-price cycle [will] matter,” he said.

This quote interested me for two reasons. First, Herbert says this is about buying a house and staying long term. Sure, the housing market might be crazy right now but a buyer should be thinking about living in the space for a while. But, then the advice pivots a bit to noting how this long-term view can pay off financially. The particular financial circumstances at purchase will fade away if the price of the home increases.

That financial considerations matter as people consider home purchases is certainly true. At the same time, the shift from seeing a home as a place for long-term living to primarily a financial investment is on display here. There are features about homeownership that Americans tend to like – you own the property, there is often some outdoor space, it is more private, it is a marker of success, and so on – that transcend financial conditions. Houses are more than just the dollar signs attached to them…right?

Perhaps it would take an extended period of a cooler housing market and other positive economic stability for houses to not just be financial investments. Or, the costs of homeownership in many places are already at a point where homes can only be viewed as financial objects.

Just how many compounds, mansions, and luxury condos does a billionaire need?

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Jeff Bezos owns multiple expensive properties:

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When Jeff Bezos isn’t launching himself into space, he’s on the hunt for another trophy property to add to his already-impressive real estate portfolio. Earlier this year, the Amazon founder reportedly acquired a 14-acre compound in Hawaii for a whopping $78 million in a mysterious deal (more on that later) which brought the value of his real estate holdings to an astronomical $578 million, if not more. The billionaire has picked up several properties in his home state of Washington, a number of New York City apartments, a few sprawling estates in California, a ranch in Texas, and a number of places in Washington, D.C. Below, we’ve rounded up all of the homes the entrepreneur owns in the U.S.—so far…

Several years after Bezos founded Amazon, he put down $10 million for what has largely been his primary residence over the past few decades. It comprises two homes measuring 20,600 square feet and 8,300 square feet, respectively, situated on about 5.3 acres in the exclusive Medina neighborhood of Seattle (Bill Gates also owns a home there). In 2010, the Albuquerque native invested $28 million to renovate the property. That same year, Bezos reportedly bought the property next door, a 24,000-square-foot house that came with an additional five acres. The Tudor–style home was listed for $53 million at the time, but it is unclear what the billionaire ended up paying for the purchase. Bezos still owns this massive compound…

Bezos made a big move to Washington, D.C. in late 2016, snapping up two sprawling mansions measuring a combined 27,000 square feet for $23 million. Built in 1914, one of the massive homes was previously the site of the Textile Museum and was recorded as one of the largest houses in all of D.C. According to The Washington Post, which Bezos owns, the billionaire purchased the property with plans to convert the two adjacent structures into one single family home so that the Bezos family could use it during their visits to the city. It is located in the Kalorama neighborhood, which has also been home to the Obamas, Ivanka Trump, and Jared Kushner. In 2018, it was reported that Bezos was planning a $12-million renovation on the place, including the addition of a garden room to one of the two structures…

The next year, Bezos expanded his Beverly Hills compound with the purchase of the $12.9-million home next door to the Spanish-style mansion he’d bought in 2007. While details of the house are scant, the Los Angeles Times reports that the structure measures 4,586 square feet, with four bedrooms and six full bathrooms. The property features a gated semi-circular drive and a picturesque swimming pool shaded by mature trees…

In April, Bezos bought a fourth unit in the luxe Madison Square Park apartment building where he’d snapped up three homes the previous summer, dropping $16 million for a three-bedroom unit adjacent to the two lower-level units from the original purchase. Although it was unclear at the time what Bezos’s plans were for combining all four units, building permits were submitted in fall 2019, so it’s likely the fourth acquisition was meant to be an addendum to the already-grand Manhattan mega-mansion.

Real estate can serve multiple purposes for the wealthy. They need multiple places, homes near work, in important cities, and in getaway locations, to keep their wealthy lifestyle going and to keep their daily activity out of the public eye. These properties can be investments as the number of such units is limited. Finally, these holdings are status symbols in themselves as they require money, staff, and attention that few individuals could provide.

The implication here is that Bezos has spent a lot on all of his properties. Given his wealth, maybe not. What I would be more interested in is how his holdings compare to other billionaires. What is the average number of expensive properties? Are mansions, urban luxury locations, resort properties, or rural holdings more common? How do these big actors affect real estate activity in different locations? Deeper study of the real estate activity of the most wealthy could help us better understand how wealth translates into real estate capital.

The factors affecting housing in the Chicago region in 2022

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Several experts suggest housing prices will continue to rise in the Chicago area in 2022 but not at the same rate as they did in 2021:

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Rather, changes in home price growth, the supply of homes for sale and upticks in rock-bottom interest rates are more likely to stabilize the market after an unpredictable 2021, they said. That likely won’t mean an end to competition or high prices — and it doesn’t bode well for first-time homebuyers — but the market could ease up compared with 2021…

In the nine-county Chicago metro area, the median home sale price from January to November was $300,000, up nearly 12% over the same months in 2020, according to the Illinois Association of Realtors…

Prices are likely to rise next year, but won’t continue the exponential growth of 2021, said Daniel McMillen, head of the Stuart Handler Department of Real Estate at the University of Illinois at Chicago. Without an influx of new residents to the area or big increases in incomes, that growth will become unsustainable, he said…

Homebuyers are continuing to look for amenities like home offices and workout areas, Melbourne said. Kitchens are a priority. Condo-buyers are looking for bigger units, rather than one-bedrooms.

The pressure from COVID-19 moves will hopefully subside. Then, the more regular patterns in Chicago area real estate might take over again. There are at least several interrelated factors:

  1. Limited population increases in the Chicago region. This reduces demand.
  2. Uneven development within the region where some neighborhoods and suburbs will be popular and others not. Prices will go up in desirable places.
  3. Construction of new residences has been down. What kind of units will be built? If recent trends hold, it will be housing aimed more at wealthier residents. Additionally, these units will be constructed in some locations and not others.
  4. If there is a long-term shift in what homebuyers and renters want from units, does this significantly shift demand? Continued or more working from home has the potential to affect the individual and collective experience of places.
  5. The particulars of certain communities. Communities understand themselves as having certain characters and prioritize particular goals. Local regulations could incentivize or discourage certain kinds of development.

There are numerous factors affecting housing to pay attention to amid changing conditions.

Who should be able to live on or near the coast?

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A new federal government flood insurance plan highlights an ongoing question: should living near the ocean coast be available to many?

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At the center of the fight are the questions of who gets to live by the water, and who should shoulder the burden of costs that rise with the sea level. The estimated 13 million people who reside in the officially designated floodplain are divided between those who can buy pricey waterfront homes and those consigned to live in less desirable, low-lying areas because that’s all they can afford. Some of the people hardest-hit by major recent storms have been vulnerable communities in New Orleans; Port Arthur, Texas, outside Houston; and poor neighborhoods in the farthest reaches of New York City. The updated flood-insurance system is designed to help those populations, but in coastal communities across the country, uncertainty about the new prices is spreading fear that however well intentioned, the administration’s policy will exacerbate the inequality of beachfront living, pushing out homeowners most sensitive to climbing insurance rates.

Real estate is famously about location, location, location with recent examples – COVID-19 migration and opportunities in the metaverse – illustrating this maxim. The coast may be one of the most desirable locations as there is only so much of it and people like the views and access to the water and beaches. Even though not all coastal properties are really expensive, such land near big cities and destinations can be very pricey with high demand.

Even as the insurance program is updated, perhaps the real long term question is just how many people should be able to live on the coast at all given climate change, environmental concerns including erosion and habitat degradation, and an interest in keeping shoreline available for public use. Is there any chance more coastline in popular areas is protected fifty or one hundred years from now or are the market pressures just too strong?

Wealthy people can just buy a town, Mark Cuban edition

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A very small community in Texas is now owned by Mark Cuban:

Google Maps, Mustang, TX, on December 3, 2021

The billionaire just bought the entire town of Mustang, Texas — a blip on the map off I-45, with a population of 21 people, according to the latest census data.

The reason, Cuban told the Dallas Morning News: A buddy needed to sell it…

The town was founded in the early 1970s, when it was known mostly as a local watering hole in an otherwise dry Navarro County, according to the paper. These days, there’s little more than a trailer park and a strip club, Wispers Cabaret, which is reportedly in disrepair. On Friday, Google Maps showed the name of the club had been edited to “Mark Cubaret.”…

It’s not clear what Cuban paid for the town, but for someone with a net worth of nearly $6 billion, it was almost certainly a steal. The town was reportedly put up for sale in 2017 for $4 million, but Turner said it was overpriced, even when they slashed the listing price in half.

The angle taken in this reporting is whimsical: a billionaire purchases a town with few plans except to help a friend. The point is made clearly by the opening comparison of Cuban to Johnny Rose, the father in the comedy series Schitt’s Creek.

There are other ways to approach such a story:

  1. How often do wealthy people make such purchases?
  2. When you buy a town, what happens to the people who live there? Is this like buying homes or apartments or is there something different involved when purchasing a community?
  3. What could these 77 acres become given the existing land use and location?

The buying and developing of large land parcels is big business and has consequences for many people. Where does the story go from here?

(This is not the first time I have written about the selling or buying of towns in the United States. See here.)

Buying and selling real estate in the metaverse

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With Facebook pivoting to the metaverse, real estate activity is picking up in this realm:

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In October, Tokens.com, a blockchain technology company focused on NFTs and metaverse real estate, acquired 50 percent of Metaverse Group, one of the world’s first virtual real estate companies, for about $1.7 million. Metaverse Group is based in Toronto but has virtual headquarters in a world called Decentraland in Crypto Valley, which is the metaverse’s answer to Silicon Valley. Decentraland also has districts for gambling, shopping, fashion and the arts.

“Rather than try to create a universe like Facebook, I said, ‘Why don’t we go in and buy the parcels of land in these metaverses, and then we can become the landlords?” said Andrew Kiguel, a co-founder and the chief executive of Tokens.com…

For those wondering why a company would want to invest in a virtual office in the metaverse, Michael Gord, a co-founder of the Metaverse Group, said that skeptics should look at the trends catalyzed by the pandemic…

The Metaverse Group has a real estate investment trust and it plans to build a portfolio of properties in Decentraland as well as other realms including Somnium Space, Sandbox and Upland. The internet may be infinite, but virtual real estate is not — Decentraland, for example, is 90,000 parcels of land, each roughly 50 feet by 50 feet. Among investors, there’s a sense that there’s gold in those pixelated hills, Mr. Gord said.

Let the artificially-induced-scarcity-fueled-boom begin!

Seriously though, this offers an opportunity to acquire real estate that otherwise might be very difficult to find online or offline. In the offline world, how often do significant new parcels of land or developments come available? If they can be bought, they are not cheap, they probably attract a lot of interest, and there might be restrictions based on what is already there or what is possible on the site. In the online world, it could be difficult to predict where users might show up, how long it could take for sites to develop, and what it all might be worth?

In the meantime, investors and speculators will wait and see what happens. The bet could pay off massively: if the metaverse is successful with a few years or even a decade or two, those who got in early in prime locations with the right offerings could gain a lot. And if the metaverse does not develop in this way or other factors go awry, the money lost will be in a long line of those who hoped for the best with property and nothing materialized.