The State of Housing: Experts Discuss Global Influence, Trends, Coronavirus and Other Challenges, and Potential Solutions
David Deem
714-997-3486
By Liz Dominguez
The real estate markets are in a constant state of flux. On a national level, there are continuous shifts between buyers' and sellers' markets, housing inventory, affordability, and more. Zooming in, the challenges and opportunities of each housing market become even more diverse and nuanced. And with each individual environment comes the need for action—whether through government policy, industry action or consumer response—that solves challenges, lessens burdens and embraces opportunity as they relate to housing.
Here's a look at today's real estate market, both on a national and micro level, from the perspective of several industry practitioners.
Global Events Impacting Real Estate
The state of the economy and global occurrences can have a substantial influence on real estate, both nationally and locally. Experts are currently keeping a close watch on a global event that's having a sweeping impact on the economy and, therefore, real estate: the COVID-19 coronavirus.
"Without a doubt, two weeks ago I would have said the biggest hurdle is a general housing shortage. But that's changed," says Lawrence Yun, chief economist and senior vice president of Research for the National Association of REALTORS®. "The coronavirus is an unprecedented event, and even though we don't know how everything will play out, it's currently a big uncertainty that's hitting the stock market."
Yun says it could be good or bad. For some people, the money they have been saving for a down payment may have evaporated, but for others, low rates may provide an exceptionally enticing opportunity. According to a recent NAR survey, nearly one in four home sellers changed how their home is viewed on the market due to the outbreak, including stopping open houses, requiring that prospective buyers wash or sanitize their hands, asking buyers to remove their shoes or wear footies, and more.
The Economic Flash Survey, which was conducted March 9 and 10, found that 37 percent of respondents said homebuyers were more excited by lower mortgage rates than the stock market correction. Surprisingly, 78 percent said there's been no change in buyer interest due to the coronavirus, and 87 percent said it had not affected the number of homes on the market. In specific areas like California and Washington State, however, 21 percent and 19 percent, respectively, cited larger decreases in buyer interest.
A recent public statement from Yun following the survey release stated:
"The coronavirus is leading to fewer homebuyers searching in the marketplace, as well as some listings being delayed. In the latest flash survey, 11 percent of REALTORS® indicated a reduction in buyer traffic and 7 percent are reporting lower seller traffic when asked directly about the coronavirus impact on the market. Given that a home transaction is a major commitment, the uncertainties on how the economy will play out and the spread of the virus itself are barriers to home-buying and -selling. The stock market crash is no doubt raising economic anxieties, while the coronavirus brings fear of contact with strangers. At the same time, the dramatic fall in interest rates may induce some potential buyers to take advantage of the better affordability conditions. It is too early to assess the likely impact as to whether lower interest rates can overcome the economic and health anxieties. But the survey is implying, in the short term at least, that home sales will be chopped by around 10 percent, compared to what would have been the case, due to the spread of the coronavirus."
A Shortage of Housing Supply, Rising Home Prices
Both on a national scale and in certain local markets, aside from the coronavirus, a shortage of housing supply is the predominant challenge.
"There's a lack of housing," says Yun. "Fast price appreciation and increasing rents are causing major housing affordability challenges for both renters and first-time buyers."
In the Atlanta metro area, for example, Fortune 500 companies and other jobs and people have flooded the markets in the last decade due to mild weather and a lower cost of living, says Collette McDonald, a leader of a real estate team. Because of that, housing supply is low, particularly in hubs with easy access to transportation, causing prices to spike and new construction to slow.
"The ATL metro area struggles with transportation infrastructure, and people are sick of commuting and are seeking easier living closer to the employment and entertainment centers," says McDonald. "Properties closer in continue to appreciate at a conservative rate of 6 percent per year, which also makes it difficult for builders to develop affordable low-cost housing."
John Barmon, a REALTOR®, has experienced similar challenges in his own market, both in residential sales and rentals. He says many things attract people to Boston—an excellent economy, low unemployment, a wealth of biotech and high-tech companies, and several major nearby universities like Harvard, MIT, Tufts, BU and Northeastern.
"There is always a demand for housing that increases every year as demand outpaces supply," says Barmon. "The ongoing lack of inventory in the core Boston area has made the adjacent towns like Cambridge, Somerville, Brookline and Medford very desirable as well, and prices have risen accordingly. Those towns that have a stop on the MBTA subway lines are especially desirable, forcing lower-income buyers further and further away with longer commutes."
California is another such market that struggles with these same housing burdens.
"The biggest housing-related issue facing California is the state's worsening affordability and availability crisis," says California Association of REALTORS® (C.A.R.) President Jeanne Radsick.
Orlando is also managing a lack of affordable supply, in both its rental and residential markets.
"Orlando's popularity as a place to live and its strong economy amplify the housing shortage. Currently, more than 1,500 people are moving to the Central Florida area weekly and contribute to a demand for housing that outstrips and causes prices to rise," says Orlando Regional Association of REALTORS® (ORRA) President Reese Stewart.
Inverted Markets Exist
Not all regional markets experience the same obstacles, however—even if affordability and inventory are the overarching problems on a national level. For example, Nimesh Patel, a broker/owner, has experienced the reverse in his own markets, covering the Sugar Land, Fort Bend County and Houston areas in Texas.
"The biggest challenge we face is helping homeowners sell their homes for higher dollar values, as we are inundated with lots of land and new construction," says Patel. "With the amount of master-planned communities popping up all over the Houston area, and the numerous amounts of new-home starts slated by the builders, sellers are having a harder time competing with their resales."
Determining What Policies Should Address
On a national level, Yun says the reform of Fannie and Freddie will be important, and less stringent over-the-top regulation about building activity would help "so more homes and apartments can be built." In addition, Opportunity Zone tax incentives in economically displaced areas "could be the impetus for more building activity in what was once considered a less desirable area, but now with tax incentives becomes more viable," says Yun.
What about at the state and local levels?
According to C.A.R., policy that addresses zoning, permitting and fee certainty would make it easier to build new homes and reverse soaring home prices in California.
"California must tackle the burdensome permitting process that stifles new housing development and increases costs," says Radsick. "This begins with reducing high-impact fees that can range between 6 percent to 18 percent of a home's sales price."
ORRA, meanwhile, strongly advocates full funding of Florida's Affordable Housing Trust Funds.
"These funds, generated through fees paid during private property transfers, are intended to support programs that increase the availability and affordability of housing for our workforce," says Stewart. "However, the Florida legislature routinely siphons very significant revenues from the funds toward non-housing-related items. REALTORS® statewide work to insist that the legislature fully fund Florida's Affordable Housing Trust for the intended purposes."
Patel says understanding master-planned living, multi-generational living and multi-family living is key for Texas, as builders are currently profiting from the strategy while resales are falling behind.
"Builders are catering to those needs, which make lots of the resales obsolete," says Patel. "For example, the biggest search right now is a home with two bedrooms and two bathrooms downstairs, whereas the resales don't have that from a decade or more ago."
In Atlanta, McDonald says the Atlanta Housing Authority has already made an effort to construct more vertical units for condos and rentals in major employment districts, but that may not be enough.
"Rents are now in line with mortgage payments; however, the lack of supply limits what a buyer can do and where to live within a reasonable commute," says McDonald, adding that not all reform that benefits housing is housing-related. "ATL needs better mass transit and to focus on revitalizing and expanding our rail system, MARTA."
In the Greater Boston Area, Barmon says each town should have its own strategy for addressing housing reform.
"In my opinion, Boston and Cambridge have both been very successful in addressing the affordable housing issue by actively purchasing new properties to be eventually sold to lower-income buyers who meet the income guidelines," says Barmon. "Zoning regulations in my towns now include development guidelines which create new affordable units by requiring developers to allocate a certain percentage (usually under 20 percent) of new units in a condominium conversion project be sold to buyers who meet the affordable housing guidelines in that particular town.
"I think that Cambridge's strategy of acquiring individual housing units (condos, single-family, and multi-family properties) and offering it to qualified individuals is one of the better ways to address the lack of affordable housing," adds Barmon.
Where Should Change Come From?
At the forefront of the housing policy discussion stands the question, "Is governmental influence more effective at the local, state or federal level?"
It's a tricky question, says Patel, who believes housing policy at the local level is the most effective, but that it should not be linked to social policy, though he "can see where it can be linked in the sense of lending rules and affordability in areas."
"At the local level, there is an understanding from a community aspect, a demographics aspect and a socioeconomic aspect," says Patel.
McDonald is also pro-local policy, as long as it does not discriminate on any social policies and is based on economic factors.
"The Atlanta Housing Authority has always been one of the best-run systems in the region because they run it like a business with federal guidance," says McDonald.
Barmon believes that any successful, long-term housing reform should be addressed on a local level by each individual city and town. "Each town has its own individual wants and needs depending on the wants and needs of its individual citizens."
Radsick, however, doesn't agree that local policy is always the best solution.
"We need accountability," says Radsick. "One of the primary drivers of the housing crisis is local governments that refuse to build the housing we need. We must do everything we can to stop unreasonable 'not in my backyard' laws that only exacerbate the crisis we're in. California Gov. Havin Newsom has already taken a lead role by taking cities to court when they fail to approve reasonable and responsible housing developments.
"C.A.R. has long supported state legislation that increases housing availability for those at all income levels, from affordable to market-rate and everything in between," adds Radsick.
Brokerage-Inspired Action Can Help
Brokers agree that change can start at even more foundational levels, from within their organizations.
"I am proud to say that on a local level my colleagues have, on their own, both created and participated in supporting local charities and organizations that assist individuals who are either homeless or in danger of becoming homeless," says Barmon, who adds that these efforts include working with the Community Housing Assistance Fund—an organization run and founded by REALTORS®.
"Also, my parent company fully supports the expansion of FHA legal protections as a general, ongoing business practice, and focuses on creating a diverse marketplace by forming partnerships with professional real estate associations whose ongoing missions are to improve the homeownership rates of various diverse groups, including the LGBT community," he adds.
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