New Yorkers anxious after weathering the worst of the coronavirus pandemic are fueling a boom in home sales and rentals around the picturesque towns and wooded hills to the north.
( AP Photo/John Minchillo
Matt Katz: I'm Matt Katz in for Tanzina Vega. When the pandemic hit last year and forced millions of Americans to socially distance themselves at home to curb the spread of the virus, it also meant that millions of people lost their jobs. The stock market plunged amidst the uncertainty, and restaurants, retailers, airliners, and hotels saw their foot traffic decline significantly, but something that many of us didn't expect was that the pandemic and all of the extra time we spent at home would translate into a housing boom.
Individuals and households with means jumped at the opportunity to get into the market, with interest rates at historic lows and new flexible work-from-home schedules. Some participated in bidding wars and made offers on homes sight unseen. Here's what you told us.
Yvette: Hi, this is a Yvette calling from Temecula, California. We sold our house super fast for way more than the asking price. It was a head-spinning experience, and we felt super, super lucky.
Heather: I purchased a home in Salt Lake City, Utah in February of 2020. Then the pandemic hit and I assumed that I had purchased at the top of the housing market, and I could not have been more wrong. I ended up selling my home just 10 months later for 60,000 more than I had purchased it. In fact, I received the cash offer for $10,000 over asking price within four hours of it being listed and I was thrilled until I started looking to buy another home.
It took me two and a half months, 17 offers all over asking price before I finally was able to win a bid and purchased a different new home for more than I had actually sold my first home. That is the housing market in Salt Lake City, Utah, and this is Heather.
Matt Katz: Climbing prices and a limited supply of homes for sale have also highlighted inequalities in the housing market. Joining me now to discuss her reporting on the US housing market and who stands to benefit from the boom is Rani Molla, Senior Data reporter at Vox's Recode. Rani, welcome to The Takeaway.
Rani Molla: Thanks for having me, Matt.
Matt Katz: Rani, I'd like you to react with what we just heard from listeners. Do those stories, those anecdotes track with what you found in your reporting?
Rani Molla: Absolutely. I heard a lot of similar anecdotes when I was reporting. Just people getting these crazy number of offers on their homes if they're selling it, and then people trying to buy homes just really being out of luck having to make these offers so much higher than they expected, competing with tons of other people and people offering just cash, which is unheard of.
Matt Katz: What happened? Why is this happening, and what does it have to do with the pandemic?
Rani Molla: There's a confluence of reasons having to do with both supply and demand. On the demand side, first of all, as you said, the pandemic, a lot of people have been stuck at home, they've been teaching their kids at home, they've been in their home nearly 24 hours a day. It's made it a lot more important to have a bigger house, to have a nice space, to have outdoor space.
That was one impetus for people to be like, "Okay, maybe I'm going to get out of my apartment and I'm going to buy a house." You also have millennials aging into the time when they're going to buy their first, or maybe second homes. There's also really low mortgage rates, and then on the supply side, you have just limited numbers of houses being built since the last housing bubble, which decimated the construction industry.
You also have high lumber prices, you have a lot of people who are unwilling to put their homes in the market during the pandemic, or holding on to their homes longer. Finally, you also have investors who are buying up existing and new homes to make them into rental properties, so that's taking a lot of them off of the market. You have all of these reasons that are making the housing market just so hot and expensive.
Matt Katz: Interesting. On the last point, the investors are buying these homes and then renting them, is that how they're handling their investments?
Rani Molla: Yes, a good portion of them are. There's one estimate from John Byne's Real Estate that says something like 20% of all home buying activity is for investment properties. That could be any number of things, just holding on to it, having the price go up, but a lot of that is for rentals.
That's a trend that started after the last housing boom when all of these foreclosed houses were in the market, investors came in there and they bought houses on the cheap and flip them in order to rent them out to people.
Matt Katz: Rani, how does the volume of homes compare to the demand from buyers? Do you have any numbers, approximations on that?
Rani Molla: I know that the demand is far outstripping the supply. The last time people were buying this number of houses was 2006, right at the height of the housing bubble, the run-up to the housing bubble. We have tons of people buying houses and there's just not enough homes to meet their demand.
Matt Katz: You wrote in one of your recent stories that the rise of single-family rentals is one of the many trends pertaining the erosion of personal ownership. This is not just personal ownership of homes, right? Can you expand on that for us?
Rani Molla: Right. There's all sorts of stuff that people no longer own, we used to buy CDs, and now we spend $10 a month on Spotify. If you want, you could have a subscription for your toothbrush, but there's other things like farm equipment that you would think that you could buy outright, but the companies that make this farm equipment own the software. It's this larger trend where people own fewer and fewer things, and we're basically renting or leasing out stuff that we formerly owned, and that has a lot of repercussions for the amount of control we have over the things that we think we own.
Matt Katz: Then repercussions for accumulating wealth and passing down generational wealth too, right?
Rani Molla: Absolutely. That's especially the case with homes. They're worth hundreds of thousands of, if not more, dollars. If you're constantly paying rent, you at the end of the day don't have anything to sell, or the end of your life don't have anything to pass down to your children. This has a lot of potential repercussions for how people establish wealth. If you're able to buy a home, that's pretty meaningful as far as extending that wealth.
Matt Katz: Sure. How do homeownership rates right now compare across races?
Rani Molla: Overall, homeownership rates are pretty high, they're around 65%, but it's much higher for white people than it is for Black people, and that's historically been the case. The homeownership rates are always higher for whites. The fear is that with these prices just skyrocketing, that's going to further make it less likely for Blacks to be able to afford homes.
Part of the reasons for the lower homeownership rates were lower incomes, to begin with, also redlining, not offering them the mortgages that they might offer white people. This is just going to push it further out of reach for Americans making less money.
Matt Katz: Sure. Who else has been boxed out of this opportunity to home buy in this red hot market? Does it mean that the rising home prices and the reduced supply mean that certain demographics just are not able to get involved in this market to buy homes?
Rani Molla: It's boxed out just a lot of people, a lot of people who might have pretty good jobs, might have a good amount of money saved up, but it's just not enough money anymore. These are people who in years past would obviously be ready to buy a home, and now with home prices the way they are, they just simply can't afford it. They end up, in a lot of cases, trying to get the same things that you would get in a home but having to do so by renting.
Matt Katz: Yes. Where does this go? What's going to happen? Is this is a real estate bubble that will eventually pop?
Rani Molla: The thing is, housing prices tend to go up even-- Remember, while all this was happening, we were in the middle of a recession and the pandemic was happening and the housing prices were still going up. Obviously, the last recession was a different story that was predicated on bad loans to too many houses, but this doesn't seem to be the case. In this one, people are putting a lot more money down, they have better credit.
I guess what could happen is, eventually so many people will be priced out that the prices will have to slow down. That will eventually happen. Is just once that happens, the prices have already gone up so much that it's made it out of reach for so many people. I believe in the last year, home prices went up about 10%, and typically they go up like 3%, maybe 5%. That's just completely out of lockstep with how fast people's incomes are rising.
Matt Katz: Yes, the market is nuts. What about the renters market, is that going up at the same rate?
Rani Molla: It's not going up at the same rate. Rents are certainly going up, but just nowhere near as fast as- and these are home rent, for like renting a home, they're going up nowhere near as fast as the price of homes. More and more renting a home is becoming the more affordable option, but that's still getting more expensive as well.
Matt Katz: Who is affording these houses and increasingly astronomical prices? Is there a particular demographic that is grabbing these places before other people?
Rani Molla: The simple answer is people with a lot of money. I mean--
Matt Katz: Rich people. Yes.
Rani Molla: Rich people. This is another example of people-- Like the divide in America of wealthier people getting wealthier and poorer people getting poorer. You have a lot of people who-- I believe there was someone on the call who was saying, "I sold my house and I sold it for way more than I expected to, and I sold it really fast."
I talk to some people like that as well. These are people who already had a home, already are in an upper-income bracket because they were able to purchase a home previously, and now they just got even more money for their home. The problem is they might not be able to afford another home, but I think wealthier people will be able to get wealthier because of this.
Matt Katz: Before I let you go, I'm curious if people who are buying homes are looking for certain amenities maybe related to the pandemic that we're all still living through. Are there certain things that homebuyers want in their homes now that maybe they didn't want before?
Rani Molla: I think again and again, you just hear people want more space. They want more space and they want outdoor space. Those are really important. After a year spent inside in people's apartments without access to like a nice place to be outside, you could see why they'd want that.
Matt Katz: In my neighborhood, there are roof decks going up all over the place on houses that have just sold or that are about to be sold-
Rani Molla: That's a really good idea.
Matt Katz: -in the urban area. Yes. People are going--
Rani Molla: If you could afford a lumber. [chuckles]
Matt Katz: Yes, that's right because you've reported that lumber prices are also going up, which is also part of this, in the mix with all of this. Very interesting. Rani Molla is a Senior Data Reporter at Vox's Recode. Rani, thanks a lot for explaining this all to us.
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