Housing Market Insanity Hits The Suburbs As Million-Dollar Listings Disappear
As investors like BlackRock help drive America’s ‘Housing Bubble 2.0’ to increasingly absurd proportions, Americans are growing surprisingly accustomed to the fact that homes costing $1 million or less are growing increasingly hard to find in a growing number of urban locales. As we reported earlier this month, the number of cities where the price of an average home has topped $1 million has more than doubled over the last five years.
The dynamic is easy enough to understand: families seeking more space and cheaper prices flee from primary cities to secondary cities – or find a home in a comfortable nearby suburb.
And because of it, more in-demand suburbs surrounding cities like Boston, New York City, Philadelpha or – on the West Coast – Seattle and Spokane, Washington, are seeing the sub-$1 million homes disappear at a disturbing pace.
In a recent piece on the out-of-control American housing market, which of course will ultimately leave families holding the bag along with perhaps some investors, Bloomberg offered Wellesley, Mass., which once played host to Hillary Clinton during her college days. The McMansions and other sought-after million-dollar-plus offerings have almost disappeared from the market. Recently, in Wellesley, there were fewer than 10 even on offer.
Wealthy young urbanites are in a race to the U.S. suburbs. But they’re already late: The starter mansions are almost gone.
Take Wellesley, a leafy Massachusetts town of 30,000 people getting an influx of buyers from Boston who have outgrown apartments. Couples with dual incomes are coming out of the pandemic with more money, hungry for kids’ rooms and “his” and “her” home offices.
In the first week of February, there were just eight homes available for sale, a fifth of the level two years earlier. The cheapest one: $1.1 million.
“You have to act fast,” said Lara O’Rourke, an agent with Gibson Sotheby’s International Realty who helped a buyer beat out 15 others for a house listed for $1.4 million last month. “Inventory is not hanging around.”
Leave it to Bloomberg to care so much about the interests of the most moneyed Americans. Clearly, they know their audience. We have also reported how the present state of the housing market leaves first time buyers and poorer buyers at a growing disadvantage.
Of course, the disadvantages of the wealthy have a “spillover effect” that could also hurt the poor.
Across the country, the upscale homes that were once a symbol of affluence and aspiration for well-to-do suburbanites are in short supply. Buyers are rushing to lock in purchases as mortgage rates rise, intensifying demand. That’s driving up prices from elite commuter towns such as Wellesley and Newton outside of Boston and Rye north of Manhattan, to booming Sun Belt areas like Austin, Texas.
In a heated U.S. housing market that has locked out many entry-level buyers, people with million-dollar budgets are better positioned than most. But their difficulty finding homes has a spillover effect: They push into surrounding towns, and cheaper segments, squeezing affordability more with each bid.
“The entry price for these towns has already gone sky high,” said Chris Herbert, managing director for Harvard University’s Joint Center for Housing Studies. “It ends up pushing prices up across the board.”
High-end inventory in areas outside Boston has fallen by more than 40% over the last year. And across the country, wealthy suburbs are increasingly seeing $1 million-plus homes as “the norm”.
After years of seeing homebuyers shun its megamansions for high-rise apartments in Manhattan, even Greenwich, Conn., has seen inventory dry up.
As we mentioned earlier, the biggest problem with such hot demand is that it feeds on itself, before eventually becoming a deterrent for families; rising loan costs are another factor as buyers are reluctant to give up a preferential rate.
With demand so hot, the supply shortage is building upon itself. Older people who might have considered downsizing are staying put instead, avoiding fighting it out with younger buyers for smaller homes. As interest rates rise, homeowners also are less likely to want to move and give up their lower-cost loan. The average rate for a 30-year mortgage reached 3.92% last week, the highest since 2019, according to Freddie Mac.
In Texas, sales of single-family homes of more than $1 million almost doubled last year, according to an analysis by the Texas Realtors trade group for the 12 months through October. More than a quarter of that activity was in Austin, where an influx of tech workers with Facebook, Google or Tesla Inc. salaries are hunting for space.
And the result is that working people with budgets in between $1 million and $2 million can’t even get a showing.
They’re beating out buyers like Jeremy Knight, who has lost four bidding wars. Knight, a local real estate agent who is looking to move to a different school district, says he’s seeking homes with asking prices below $1.8 million but expects to pay more. Houses at the lower end of luxury go well over asking, he said.
“I was looking at a home for $1.75 million,” Knight said. “Just to get a showing, I had to wiggle in a 15-minute time frame at the end of the day. It was booked from beginning to end.”
So, if you’re looking to buy a home in the immediate future, you better be ready to compromise: or if they’re willing to wait another six months or so, they might have better luck if the Fed truly does act on the course proposed by Zoltan Pozsar, the oracle of the repo market.
Thu, 02/24/2022 – 21:20