The fall months typically mean a cool down in real estate transactions, but this year, with inventory low and demand high, prospective buyers are wondering whether they should wait to buy.
“It’s been hard to make predictions based on regular market patterns,” said Ruthie Ravenel of Daniel Ravenel Sotheby’s International Realty in Charleston, South Carolina. “Typically, we have a strong spring, and at the high end, the market heats up from September to October, then drops off during the holidays. That just absolutely did not happen last year.”
The Covid-19 pandemic is continuing to influence buyers’ decisions, particularly for those who are now working remotely and, as a result, are seeking out homes with more space in smaller, less crowded cities.
In Charleston for instance, median home prices jumped from $300,000 to $357,000 from 2020 to 2021, and tight inventory means that houses are going into contract quickly, sometimes within 24 hours of being listed. Buyers making cash offers and waiving contingencies have the upper hand.
The situation is similar in many other cities that have grown in appeal during the pandemic, like Denver, where home sales have totaled more than $25.5 billion so far in 2021, an increase of 25% compared to this time in 2020.
Such rapid price appreciation may lead prospective buyers to wonder whether they should rent, rather than buy, in their desired markets, in the hopes that home values and competition will start to cool down this autumn or beyond.
But after the initial wave of home buying motivated by the pandemic, the pace of transactions is settling down, and price appreciation is not expected to escalate dramatically.
“By spring 2022, prices will not have increased much—maybe by 1%, but nothing substantial,” said Daryl Fairweather, chief economist with Redfin. “So there’s no rush in terms of the price people might pay, but I do expect mortgage rates to be higher then, so if you’re financing, there are advantages to getting your mortgage rate locked in sooner rather than later.”
Another compelling reason to jump into the sales market is that finding a great rental at a discount is not as easy as it was earlier in the pandemic: Rental vacancies have sharply decreased and prices have increased in cities like Denver.
Prices won’t drop, but appreciation is starting to slow down slightly, so the best move may be to buy now.
“I’d recommend buying sooner rather than later, because home values are not dropping,” said Jon Larrance, owner of Corcoran Perry & Co., the Denver-based affiliate of Corcoran. “Even in our slow months this year, the average sales price was still higher than it was in last year’s high months. We’re seeing 20% appreciation year over year.”
And while there are still plenty of buyers out there, some markets are beginning to see a slight softening of competition, which bodes well for those who want to enter the fray this fall.
“Right now, inventory is very low and demand is high, but it has cooled off,” said Liz Slager of Summit Sotheby’s International Realty in Salt Lake City. “Instead of a home getting 40 offers, it’s getting a handful. It’s still a seller’s market, though, and if interest rates remain low I think we’ll continue at this pace.”
Deciding Whether to Buy or to Wait
It’s still a seller’s market across the country, but price growth has begun to slow a bit from its previously frenzied rate in July. Heading into the fall, competition should be less fierce than it was in the summer months, real estate analysts predict. Given this slight cooldown, it may not pay to rent and wait for deeper price cuts.
“Summer was quite a frenzy, and three months ago I’d say you might want to wait,” Mr. Larrance said. “But right now is the time. Prices have stabilized, and I don’t think they’ll drop further, but there is less buyer competition. I’m seeing only a couple offers on new listings in the first week, rather than 15 offers.”
Competition should continue to abate into the spring, when inventory is expected to increase as those who have been considering selling may decide to take the plunge.
“It usually takes time for sellers to decide to sell in a market where prices are going up,” Ms. Fairweather said. “Once prices start to level off, they’ll see there isn’t an advantage to waiting and start to list their homes.”
Prospective buyers may also be turned off from renting first by the state of the rental market, which has rebounded significantly in many cities, especially at the high end.
Still, those planning to buy may want to consider a temporary rental while they familiarize themselves with their desired neighborhoods, especially if they are trying out cities that are new to them.
“The rental market has gotten tighter, but you can still get a fairly good deal on an apartment. Either visit several times, or rent and try to make some kind of arrangement where you can break the lease if you find something,” said Paul Zweben, a broker with Douglas Elliman in New York.
The real estate market in Manhattan rebounded over the summer, after a dramatic plunge in the early days of the pandemic, but it shouldn’t take long for luxury buyers to find opportunities this fall, he added.
“Even though transactions have picked up dramatically, there’s still incredible value all over town, including in new developments,” Mr. Zweben said.
Still, those planning to buy this fall should only do so after a careful analysis of the properties they’re interested in, taking into consideration their own long-term plans.
“You don’t want to buy something you’re not excited about or that doesn’t meet your needs. When you find that property, do an analysis with the help of an agent and base your offer on what you feel the market is yielding for that particular property,” Ms. Slager said. “Look at its merits, the feasibility of renting it out and what kind of returns on investment you might get.”
What to Expect This Fall
Advisers to the Centers for Disease Control and Prevention are predicting a decline in Covid cases through March, but the pandemic will continue to influence people’s buying decisions, real estate analysts predict.
“The shift in mentality and buyer activity is going to continue. There’s been a complete reimagination of what’s important in life, and people will take that well beyond the Covid situation,” Ms. Ravenel said.
With remote-work policies ongoing at many large companies and low interest rates, buyers will continue to look into relocating to, or investing in, more spacious properties in smaller, less densely-crowded cities.
“If things remain the same, with interest rates and inventory low and demand high, I think we’ll just continue at this pace,” Ms. Slager, in Salt Lake City, said. “The pandemic has definitely left an indelible mark.”
Should interest rates go up, or if the pandemic surges again and cities re-enter lockdowns, all this could change, she acknowledged. But in the absence of any dramatic shifts, activity should continue this fall, albeit at a less frenetic pace than over the summer.
By: Alanna Schubach I Mansion Global I October 2021