The Pandemic Ignited a Housing Boom—But It’s Different From the Last One

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© Michael Conroy/Associated Press

SOURCE:  Nicole Friedman  

The residential real-estate market is on its biggest tear since 2006, just before the housing bubble burst and set off a global recession. Yet in nearly every meaningful way, today’s market is the inverse of the previous boom.

Anthony Lamacchia, a broker and owner of a real-estate company near Boston, entered the industry in 2004. Home buyers were trading up to bigger, more expensive houses after barely a year, he said. Many buyers paid small down payments, or none at all. When housing prices stopped rising, the market collapsed. By 2009, Mr. Lamacchia was working with clients desperate to dump the homes he had just helped them buy.

Now, he said, housing demand in the Boston suburbs is stronger than he has ever seen. Lamacchia Realty reached $1 billion in sales last year for the first time. Buyers have higher credit ratings these days. They are flusher and are putting down more cash up front.

“On $1 million purchases, people are putting down $500,000,” he said. “You didn’t see that before.”

In 2020, sales of previously owned U.S. homes surged to their highest level in 14 years, and many economists forecast sales to rise again this year.

In the mid-2000s, loose mortgage-lending standards enabled borrowers with poor credit histories to purchase homes beyond their means, sometimes with mortgages that required low payments in the early years of the loan. Too much new construction led to an oversupply of houses. Financial firms packaged these risky mortgages as securities and sold them to investors. When more homeowners started defaulting on their mortgages, lenders suffered large losses and the entire financial system froze up.

Many homeowners paid a big price. Between 2006 and 2014, about 9.3 million households went through foreclosure, gave up their home to a lender or sold in a distressed sale, according to a 2015 estimate from the National Association of Realtors.

The current housing boom is far more stable than the last one and poses fewer systemic risks, economists say. A downside: There are more barriers to entry, and it’s more difficult for buyers who aren’t already homeowners to make that first purchase.

Most real-estate analysts agree that the pandemic helped ignite the current boom as some urbanites looked to leave crowded cities like New York and San Francisco for cheaper cities or for more space in the suburbs while working from home. When lockdowns began lifting last year, home sales took off: June sales surged nearly 21% over the prior month, the biggest monthly increase on record going back to 1968. That milestone lasted only a month, when July sales rose almost 25% from June.

“Covid has catalyzed a rethinking of where we live, and why we live there, and where we work, and how we work,” said Rich Barton, chief executive of online real-estate company Zillow Group Inc.

Market watchers also say that a number of longer-term trends are at play that should keep the housing market hot, or at least steady, even after Covid-19-related demand fades.

Millennials, the largest living adult generation, continue to age into their prime homebuying years and plunk down savings for homes. At the same time, the market is critically undersupplied. New-home construction hasn’t kept up with household demand, and homeowners are holding on to their houses longer. Buyers are competing fiercely for a limited number of homes.

Mortgage lenders, meanwhile, are maintaining tight standards—buyers are drawn to the market by historically low interest rates, not by easy access to credit. Rising home values also mean that even if homeowners can’t afford their mortgage payments, they can likely sell their homes for a profit rather than face foreclosure. Financial firms are still packaging mortgages as securities, but the vast majority of those mortgages today have government backing.

The biggest winners in today’s boom are people who already own homes, who gained a collective $1.5 trillion in equity in 2020 from a year earlier, according to CoreLogic. They have also saved money by refinancing their mortgages at record low rates. Many have started renovation projects or bought vacation homes.

Real-estate brokers, home builders and mortgage lenders are also riding the wave. The S&P Homebuilders Select Industry index is up 96% over the past year, outpacing the S&P 500’s 59% gain. Between July and December, eight of the 30 largest U.S. mortgage lenders announced plans to go public.

Those trying to break into the market for the first time have rarely found it more difficult. U.S. house prices soared 10.8% in the fourth quarter from a year earlier on a seasonally adjusted basis, the biggest annual increase in data going back to 1992, according to the Federal Housing Finance Agency. The median home purchase price climbed above $300,000 last year for the first time. Nearly one in four home buyers between April and June bought houses priced at $500,000 or more.

Less-expensive homes became harder to find. Sales of homes priced at $250,000 and below declined in 2020 from a year earlier, according to NAR.

First-time home buyers are struggling to afford down payments. For many renters who lost jobs in 2020, homeownership is even further out of reach.

“Housing has become a luxury good,” said Glenn Kelman, chief executive of real-estate brokerage Redfin Corp. “The economy seems to have officially split in two. There is so much hardship in one part, and then there’s just an absolute mad dash to buy houses in the other part.” The homeownership rate stood at 65.8% in the fourth quarter of 2020, up from 63.7% in the fourth quarter of 2016, according to the U.S. Census Bureau.

The housing market’s biggest near-term concern is rising mortgage interest rates, which recently hit their highest level since July and cooled the market slightly. With bond yields rising as investors anticipate a post-Covid rebound, many economists expect mortgage rates to continue creeping upward this year.

Federal Reserve Chairman Jerome Powell said this month that the central bank will maintain ultralow interest rates until its employment and inflation goals have been met, which he said were “still a long way” away.

Some of the home sales in the past year were likely sales that would have happened in the next few years but were accelerated due to Covid-19, real-estate agents say. That could augur a slight slowdown in demand going forward. Some people who are currently working from home are also likely waiting for their companies to decide on future remote-work policies. They might opt to stay put if they are required to commute to the office daily in the future.

Economists also caution that the shortage of homes on the market could limit the number of sales this year. Spring is typically the busiest season for home sales, as families aim to move before the start of a new school year.

The housing markets in New York City and San Francisco, two of the country’s priciest areas, slumped last year as some residents moved away and the pace of people moving into those cities slowed. New York City home prices in January fell 3.1% from a year earlier, according to listings website StreetEasy’s price index. In San Francisco, the median sale price in January declined 1.9% from a year earlier, according to Redfin.

For now, the pandemic looks likely to keep housing demand strong. In Sacramento, Calif., an influx of buyers from the San Francisco Bay Area helped push up the median sales price 21.3% in January from a year earlier, according to the California Association of Realtors.

That buying interest helped Rachel Voss, an attorney, upgrade her living situation and remain in the city she has called home since 2003. Ms. Voss sold her house in November for $409,900, nearly $155,000 more than what she paid for it in 2008. Her new house, a three-bedroom south of downtown, has twice the space of the old one, and she bought it with a lower interest rate.

Firms lending on all these home purchases are thriving. One of those is run by Rick Arvielo, chief executive of the Orange County, Calif.-based mortgage lender New American Funding. During the previous housing boom, he wondered if he was blowing a big opportunity. Competitors were getting rich making subprime mortgages, and he considered getting into the business. His wife and co-founder, Patty Arvielo, refused.

Business slowed during the housing crash and the Arvielos didn’t take a paycheck from mid-2007 until early 2009, but their higher underwriting standards during the boom helped them survive.

In 2020, lenders had more demand than they could handle. Homeowners rushed to refinance at lower interest rates and buyers flocked to the market. Mortgage originations rose to a record high in the fourth quarter, according to the Federal Reserve Bank of New York. About seven out of every 10 of those mortgages went to borrowers with high credit scores above 760.

The refinance market has slowed in recent weeks as mortgage rates have ticked higher. So Mr. Arvielo said his business is pivoting to focus more on home purchases, especially for millennials and minority buyers. “That’s where you’re going to see a lot of the growth,” he said.

Unlike in the building boom of the mid-2000s, a deficit of homes for sale is playing a big role in the current spike in prices. New-home construction hasn’t kept up with demand in recent years, as builders took years to recover from the financial crisis and faced shortages of land and skilled labor. Those shortages and rising material costs continue to hinder builders as they increase production.

While housing starts rose in 2020, new-home construction per U.S. household in December was still more than 20% below its average level in the late 1990s, according to Jordan Rappaport, a senior economist at the Federal Reserve Bank of Kansas City.

Homebuying demand is so high that many builders are limiting the number of homes they sell at a time, to ensure they don’t sell more than they can build. They are also raising prices. The median new-home sales price was $346,400 in January, up 5.3% from a year earlier.

“It’s the hottest market I’ve ever seen,” said Sean Chandler, president of the central Texas division at home builder Chesmar Homes. “The buyers that come in are like, ‘I just want a home. I don’t care at this point what it costs.’ ”

Some economists say a decline in demand would be welcome as a way to slow house-price growth. Even with borrowing rates near 3% for a 30-year fixed-rate mortgage, much of the benefit to buyers is offset by rising home prices. In the fourth quarter, the typical monthly mortgage payment ticked upward to $1,040, from $1,020 a year earlier, NAR said, even though mortgage rates declined nearly a full percentage point.

The Urban Institute projects that by 2040, each generation will have a homeownership rate lower than the preceding generation had at the same age. That means younger Americans could struggle to build household wealth compared with previous generations.

The homeownership gap between white and Black households has also grown in the past decade, and the Urban Institute projects the Black homeownership rate will decline between 2020 and 2040.

Some first-time buyers are being priced out of the market or have been forced to stretch financially.

In Phoenix, which boasts some of the fastest home-price appreciation in the country, Pearl and Andrew Kleinhans saved for two years to buy their first home. But even with $200,000 saved for a down payment, they kept losing out last fall in bidding wars with cash buyers.

They wanted more space than the 1,200-square-foot rental apartment they shared with their 12-year-old son, two dogs and a cat, and they wanted to stay in the neighborhood where their son attends school.

They started with a budget of $600,000, but ended up having to spend $850,000 in January for a four-bedroom home.

“What can you do?” Ms. Kleinhans said. “It was a bit out of our price range, or what I intended to spend. But that’s just what you have to do in order to get your foot in the door.”

Write to Nicole Friedman at [email protected]

California is home to some of the healthiest cities in the country

By | Blog

Source: WalletHub

Adam McCann, Financial Writer – Feb 8, 2021
Source: Wallet Hub (https://wallethub.com/edu/healthiest-cities/31072)

San Francisco and San Diego ranked first and fourth, respectively, on a list of the healthiest cities in the U.S., according to Wallet Hub, which assessed the 150 most populous cities in the nation — across four categories: health care, food, fitness and green space. San Francisco’s highest ranking was No. 1 in both the green space and food categories, and its residents are some of the best at eating  their fruits and vegetables; the city has the fifth-lowest percentage of adults who don’t eat their veggies, tied with Oakland.

Other California cities ranking in the top 25 include Irvine, Huntington Beach, San Jose and Santa Rosa.

 

Healthiest Places to Live in the U.S.

Adam McCann, Financial Writer – Feb 8, 2021
Source: Wallet Hub (https://wallethub.com/edu/healthiest-cities/31072)

Overall Rank  City Total Score  Health Care  Food  Fitness  Green Space 
1 San Francisco, CA 69.11 10 1 59 1
2 Seattle, WA 65.70 14 6 25 2
3 Portland, OR 65.59 20 3 24 4
4 San Diego, CA 62.88 26 4 11 9
5 Honolulu, HI 62.75 12 11 57 5
6 Washington, DC 61.11 45 8 75 3
7 Austin, TX 59.12 19 13 27 13
8 Irvine, CA 58.92 16 35 3 17
9 Portland, ME 58.75 6 21 19 38
10 Denver, CO 58.71 55 15 6 12
11 South Burlington, VT 58.54 1 10 88 137
12 Burlington, VT 58.49 3 19 90 16
13 Huntington Beach, CA 57.92 21 44 4 18
14 Fremont, CA 57.84 4 23 22 30
15 Minneapolis, MN 57.67 24 24 64 8
16 Salt Lake City, UT 57.29 72 20 2 36
17 Scottsdale, AZ 56.24 58 45 1 25
18 Orlando, FL 55.65 33 17 14 44
19 Boston, MA 55.50 80 12 51 20
20 Boise, ID 55.29 52 47 21 11
21 San Jose, CA 55.19 13 16 38 56
22 Atlanta, GA 55.18 43 14 23 41
23 Santa Rosa, CA 54.68 41 63 12 26
24 Virginia Beach, VA 54.60 7 48 43 34
25 New York, NY 54.42 98 2 142 14
26 Madison, WI 54.22 23 41 28 33
27 Chicago, IL 54.04 86 18 98 10
28 Columbia, MD 53.83 2 87 30 61
29 Los Angeles, CA 53.61 118 9 56 35
30 Glendale, CA 53.54 99 51 35 7
31 Santa Clarita, CA 53.28 59 84 36 6
32 Fort Lauderdale, FL 53.25 73 43 10 43
33 Oakland, CA 53.22 29 5 82 73
34 Sacramento, CA 53.21 66 29 55 21
35 Richmond, VA 53.04 25 67 26 42
36 Plano, TX 52.86 8 90 16 51
37 Tampa, FL 52.49 39 27 48 47
38 Oceanside, CA 52.31 35 54 7 117
39 Miami, FL 52.23 135 7 33 62
40 Long Beach, CA 52.11 97 36 31 27
41 Raleigh, NC 52.07 15 28 44 94
42 Pittsburgh, PA 52.02 42 22 60 55
43 Lincoln, NE 51.84 22 119 46 19
44 Vancouver, WA 51.81 30 69 15 88
45 Tempe, AZ 51.39 107 53 5 68
46 Anaheim, CA 51.15 47 40 41 53
47 Chesapeake, VA 50.17 11 115 95 24
48 Nashua, NH 50.12 37 125 13 93
49 Rochester, NY 50.12 82 38 68 40
50 Missoula, MT 49.93 36 131 37 46
51 Spokane, WA 49.90 57 62 54 48
52 Durham, NC 49.57 9 50 73 99
53 Charleston, SC 49.27 17 123 61 52
54 Colorado Springs, CO 49.21 88 88 9 60
55 Aurora, CO 49.07 67 81 18 70
56 St. Paul, MN 49.05 51 66 89 37
57 Las Vegas, NV 48.93 162 25 29 65
58 Reno, NV 48.91 114 85 17 49
59 Grand Rapids, MI 48.79 49 70 69 66
60 Peoria, AZ 48.79 110 106 58 15
61 Charlotte, NC 48.32 34 32 76 100
62 Overland Park, KS 48.21 18 94 72 120
63 Tacoma, WA 48.14 54 89 40 109
64 Omaha, NE 47.72 46 68 53 90
65 Pearl City, HI 47.66 5 112 97 162
66 Manchester, NH 47.60 61 116 50 76
67 St. Louis, MO 47.55 103 46 74 57
68 Philadelphia, PA 47.47 167 30 96 32
69 Yonkers, NY 47.38 96 33 103 69
70 Phoenix, AZ 47.34 129 34 85 54
71 Albuquerque, NM 47.25 122 72 47 59
72 Baltimore, MD 47.23 121 26 100 64
73 Cincinnati, OH 47.13 111 49 87 50
74 Chula Vista, CA 47.07 32 78 39 132
75 Chandler, AZ 47.07 91 82 8 123
76 Garden Grove, CA 47.05 50 60 109 83
77 Rancho Cucamonga, CA 46.95 105 145 34 23
78 Tucson, AZ 46.87 143 52 32 78
79 St. Petersburg, FL 46.84 81 79 65 63
80 Wilmington, DE 46.68 78 97 104 28
81 Gilbert, AZ 46.49 76 92 20 113
82 Buffalo, NY 46.32 87 37 114 67
83 Pembroke Pines, FL 46.27 56 100 49 146
84 Oxnard, CA 46.11 105 71 84 81
85 Sioux Falls, SD 46.08 93 73 67 101
86 Fargo, ND 45.93 70 105 63 111
87 Jacksonville, FL 45.60 90 83 70 80
88 Glendale, AZ 45.19 148 101 52 58
89 Anchorage, AK 45.10 125 93 118 31
90 Bridgeport, CT 45.03 130 112 62 71
91 Jersey City, NJ 44.77 100 31 125 96
92 Santa Ana, CA 44.76 85 57 105 86
93 Houston, TX 44.75 75 39 106 124
94 New Haven, CT 44.59 89 111 133 39
95 Dallas, TX 44.30 109 58 81 115
96 Bismarck, ND 44.16 126 77 71 134
97 Des Moines, IA 43.78 38 136 79 103
98 Norfolk, VA 43.67 31 118 136 74
99 Tallahassee, FL 43.64 62 166 116 22
100 Knoxville, TN 43.36 156 96 83 84
101 Columbia, SC 43.27 44 128 91 156
102 Henderson, NV 43.21 140 134 45 85
103 Aurora, IL 43.18 63 127 102 97
104 Providence, RI 43.12 158 56 150 45
105 Greensboro, NC 43.07 64 156 80 89
106 Mesa, AZ 43.03 138 76 41 158
107 Juneau, AK 42.97 68 91 170 82
108 West Valley City, UT 42.81 128 59 92 165
109 Newport News, VA 42.65 27 129 149 98
110 Milwaukee, WI 42.60 142 86 113 72
111 Billings, MT 42.58 69 126 128 122
112 Riverside, CA 42.45 131 114 66 108
113 Salem, OR 42.43 108 75 152 92
114 Warwick, RI 42.40 77 102 124 128
115 Fresno, CA 42.29 137 55 94 129
116 Cleveland, OH 42.16 132 42 161 87
117 Cedar Rapids, IA 42.11 40 132 127 125
118 San Antonio, TX 42.06 104 95 120 95
119 Modesto, CA 41.70 160 122 108 77
120 Springfield, MO 41.66 95 142 122 75
121 Cheyenne, WY 41.63 48 163 112 167
122 Kansas City, MO 41.62 53 117 144 107
123 Columbus, OH 41.48 71 99 148 104
124 Worcester, MA 41.34 120 103 145 91
125 Rapid City, SD 41.33 101 107 156 116
126 New Orleans, LA 41.07 166 130 147 29
127 Fort Worth, TX 40.92 116 120 78 153
128 Lexington-Fayette, KY 40.86 28 104 162 155
129 Cape Coral, FL 40.79 102 135 93 160
130 Nashville, TN 40.64 154 64 138 112
131 Huntsville, AL 40.25 60 141 153 127
132 Port St. Lucie, FL 40.18 146 109 86 176
133 Indianapolis, IN 40.08 144 80 157 105
134 Lewiston, ME 39.98 65 165 129 159
135 Little Rock, AR 39.77 83 139 140 114
136 Arlington, TX 39.64 115 140 77 147
137 El Paso, TX 39.50 173 110 101 110
138 Chattanooga, TN 39.15 141 150 99 130
139 Louisville, KY 39.08 164 74 146 135
140 Casper, WY 38.85 117 171 111 172
141 Oklahoma City, OK 38.63 84 148 134 126
142 Nampa, ID 38.33 165 98 131 175
143 Irving, TX 38.13 139 133 107 140
144 Akron, OH 38.07 149 146 132 102
145 Bakersfield, CA 37.91 151 108 139 154
146 Newark, NJ 37.69 174 65 154 150
147 Ontario, CA 37.65 161 144 117 139
148 Hialeah, FL 37.55 170 61 141 163
149 Fontana, CA 37.32 147 159 119 133
150 Tulsa, OK 37.16 113 147 135 148
151 Garland, TX 37.14 133 138 126 138
152 Stockton, CA 37.07 134 121 165 149
153 Fort Wayne, IN 36.76 145 137 121 161
154 Birmingham, AL 36.58 123 151 151 143
155 Grand Prairie, TX 36.55 119 149 169 131
156 Dover, DE 36.40 74 173 163 173
157 Columbus, GA 36.31 150 157 167 119
158 Moreno Valley, CA 36.22 153 153 164 118
159 Winston-Salem, NC 36.08 112 169 115 166
160 San Bernardino, CA 35.81 177 154 143 106
161 Charleston, WV 35.39 94 168 171 136
162 Amarillo, TX 35.37 179 172 110 121
163 Fayetteville, NC 35.02 79 170 166 177
164 Las Cruces, NM 35.01 127 177 130 174
165 Wichita, KS 34.92 124 174 137 145
166 North Las Vegas, NV 34.62 175 160 173 79
167 Mobile, AL 34.19 159 158 155 178
168 Baton Rouge, LA 34.16 152 167 160 144
169 Corpus Christi, TX 34.11 169 155 159 152
170 Detroit, MI 33.73 171 124 175 151
171 Augusta, GA 33.67 136 162 158 180
172 Toledo, OH 33.27 155 152 168 169
173 Lubbock, TX 32.44 180 175 123 142
174 Huntington, WV 32.01 168 143 179 141
175 Jackson, MS 31.45 92 176 174 179
176 Fort Smith, AR 31.02 172 161 177 168
177 Montgomery, AL 30.86 157 178 172 164
178 Memphis, TN 29.17 178 164 176 171
179 Shreveport, LA 28.02 176 180 178 170
180 Gulfport, MS 26.02 163 179 180 182
181 Laredo, TX 25.64 181 181 182 157
182 Brownsville, TX 23.39 182 182 181 181

Note: With the exception of “Total Score,” all of the columns in the table above depict the relative rank of that city, where a rank of 1 represents the best conditions for that metric category.

The 2020 Sonoma County Sales Stats Are In!

By | Blog

Wondering what’s up with the market in Sonoma County? Here are the sales stats for 2020. You’ll note an 8% increase in median sale price compared to 2019! If you’re wondering what your home may be worth right now, give me a ring or reach out. I’m happy to answer any questions you may have!

Hope you are doing well!