The pandemic upended seasonal home-buying patterns in the U.S., with an initial downturn in early 2020 when Covid-19 first hit, followed by a frenzy of activity as buyers sought out larger homes amid ongoing restrictions and remote work.
Prior to the pandemic, activity tended to follow predictable seasonal patterns, picking up in spring and summer as buyers looked to close on new purchases before the beginning of the school year, and cooling down in fall and winter.
But a major upturn in buying beginning in late 2020 has led to a tightening of inventory in cities across the country, and the limited housing options have meant that buyers face fierce competition and price appreciation. This has also forced buyers to act quickly, no matter the time of year, making it difficult to plan for the longer term.
These trends could begin to ease up this year, but there is still a long way to go until inventory returns to levels that favor buyers.
“We expect homes to move quickly, though it may be a bit less competitive than last year,” said Danielle Hale, chief economist with Realtor.com. “Construction is doing reasonably well, but we’re still seeing fewer homeowners deciding to sell than this time last year. There are baby steps in the right direction, but we still have fast-moving home sales and rising prices.”
Seasonal patterns remain absent in some markets. In South Florida, for instance, what was once a strong seasonal market has become a year-round one since the onset of Covid.
“A lot of people sitting on the fence decided to make a move over the past two and a half years,” said Dana Koch, a broker with Corcoran in Palm Beach. “People’s timelines were expedited significantly, not just by Covid but also by taxes. They’re migrating from high tax states like New York, New Jersey and California.”
Fast-moving inventory is also plaguing markets further north, in Washington D.C., and on the West Coast, in California’s Bay Area. Buyers who want to close in the coming months have to be prepared to jump as soon as they see a property they like, agents say.
“Buyers have to make even shorter-term decisions than last year,” said Nurit Coombe, a broker with The Agency in Washington, D.C.. “It’s about getting our clients prepared and ready, and finding listings before they even come onto the market.”
But there are economic variables that could slow buying activity this year and begin to usher in a return to seasonality.
“Many different factors could have an impact, but interest rates are the number one thing,” said Jeff Samuels, a broker with The Agency in Northern California. “If rates go up, on top of prices escalating so quickly, something will have to give, and if things become unaffordable, eventually demand will wane.”
Why Seasonal Patterns Haven’t Returned to Many Markets—Yet
The biggest obstacle to a return to seasonal patterns is a nationwide housing shortage due to the buying frenzy that took place in the wake of pandemic lockdowns, as well as home construction failing to keep pace with demand from new buyers.
“Over the last decade, if you compare household formation and housing construction, there are 5.8 million households we just didn’t build for,” Ms. Hale said. “It set the stage for a long-term dynamic. Builders are ramping up now, but it’s such a big hole to dig out of, and the housing market is incredibly competitive with low mortgage rates adding fuel to the fire.”
In some markets, tight inventory is a larger challenge than in others. South Florida, for instance, has seen particularly intense demand throughout the pandemic, with buyers lured to the area for its tax breaks, as well as its climate and lifestyle.
“There’s insatiable buyer demand, especially for homes that are newly renovated or new construction, because people don’t want to contend with supply-chain issues or delays with contractors,” Mr. Koch said.
Supply of resale properties is also low, he added, because sellers are concerned about their own ability to find suitable new homes upon parting with their old ones.
In the D.C. area, Ms. Coombe said, there is even less inventory this year than there was last year, with buyers eager to lock in historically low interest rates.
“Sellers are jumping into the market, but there are so many more buyers than sellers,” she said. “It seems there’s no seasonality—the market is strong the whole year.”
In Northern California, the issue is not so much a lack of new listings, but how quickly they’re moving off the market.
“There’s this idea that there’s nothing on the market, but there are plenty of houses. The number of closed sales are up in a county I manage, year over year,” Mr. Samuels said. “The issue is the level of demand, which is meeting or exceeding inventory.”
However, in some markets there are indications that seasonal patterns of real estate activity are returning.
“A lot of seasonality has to do with the way people make decisions for their families, with buyer demand shaped by the school year and sellers responding,” Ms. Hale said. “We tend to see more family-oriented selling in the spring, with some markets more seasonally affected than others.”
One such market is New York City, where buyers who are hoping to enter the fray when there is less competition can still count on doing so during specific times of the year.
“You can get a very good deal at the end of the year, because sellers don’t want to compete with the new inventory that comes in February or March,” said Lisa Chajet, a broker with Coldwell Banker Warburg in New York. “There’s also product sitting on the market past July 4th, so if you can grab something in July and August when people are out of town, you’re going to get a leg up.”
Strategies for Buyers
Buyers seeking to stand out from the competition in the more frenzied U.S. markets are opting for many of the typical strategies, like getting pre-approved for financing, or making all-cash offers and waiving contingencies.
They should also keep in mind that sellers may be hindered by low inventory as well.
“One in four sellers are saying they can’t find homes in their price range in the current market,” Ms. Hale said. “People think it’s a challenge just for buyers, but a lot of sellers are also buyers, so it becomes a challenge for both sides of the transaction.”
One winning strategy for buyers is to offer flexibility on closing dates to sellers who may struggle to find their own new homes.
“There are certain sellers who want extended time in their homes after closing, before they transition to summer homes around the country,” Mr. Koch said. “Some buyers are offering extended closings, and trying to get creative so sellers don’t feel like they’re under pressure.”
Some buyers may want to wait out this period of intense activity and wait for seasonality—and the ability to plan ahead—to return to the market. But those using financing need to keep an eye on interest rates, which are expected to rise this year.
“Some people want to wait for a downturn, because they think it means a huge drop in prices,” Mr. Samuels said. “But what does a 10% drop really mean in terms of saving, if interest rates are two percentage points higher? Look at what the payment will be on the house you want.”
Even if interest rates do begin to creep up, they’ll likely still be relatively low, Ms. Chajet pointed out.
“It will still be cheaper to buy than rent in New York if you have the money,” she said. “And sellers are nervous about new inventory coming on in the spring, so I’m telling my buyers to jump in now.”
By: Alana Schubach I Mansion Global I March 4, 2022