The state of the residential real estate market

Suzanne was in Portland last week, and one of the places she stayed had a copy of Portland Monthly from last year, with an article about on "Portland Neighborhoods by the Numbers 2021: Nearly every part of town saw an increase in the median sales price last year."  

I really liked the map graphic they used, about price appreciation, which drilled down to neighborhoods rather than the more gross-grained zip code analysis that media tend to use.

I don't know what's up with the real estate market. 

I do think the pandemic generated some frenzied buying, pushing prices up a lot in most markets.  I probably thought that was a new normal, now I am not so sure.

At the time I thought it wasn't covid frenzy, but the result of reaching a kind of peak supply crisis ("U.S. Housing Market Needs 5.5 Million More Units, Says New Reports," Wall Street Journal, 2021) abetted by a massive increase in ownership of single family homes on the part of private equity ("Where Have All the Houses Gone: Private Equity, Single-Family Rentals, and America’s Neighborhoods," Brookings) further reducing supply in the owner market.

We still have the supply deficit and private equity participation.  But the froth is reduced, especially because of the rise in mortgage interest rates.

Most economists predict prices will fall some ("Moody's: Home prices to fall in these 210 housing markets—while these 204 markets will go higher," Fortune).  

But not that much ("Rents and home prices are still soaring, but at a slower pace," Washington Post), "The Most Competitive Rental Markets in 2022: Miami Is Red Hot, While Competition in the Northeast Intensifies," RentCafe).

We are seeing that.  

Again, abetted by mortgage interest increases, sales have slowed, and houses that have "defects" of various sorts (poor renovation, needs renovation, poor interior flow, location, etc.) aren't selling very quickly

It does get back to understanding the factors that support long term value, which I've written about in:

-- "The eight components of housing value," (2016)
-- "Revisiting factors influencing housing purchase," (2021)

Decline in attractiveness of center city location with shift to work from home.  But I do think the value of center city location might be diminished somewhat with the decline of the importance of central business districts in response to the work from home trend, which was significantly accelerated as a response to covid ("COVID-19 Pandemic Continues To Reshape Work in America," "As Remote Work Persists, Cities Struggle to Adapt," Pew Research Center).

If people don't have to commute to work as much, and commuting isn't as bad as it was in terms of traffic and the chance for catastrophe in terms of severe delays, maybe people will be less motivated to live in the city in part as a desire to reduce commuting time.

Amenities as a factor in housing choice.  Although a key factor remains, the value of access and proximity to "amenities," from nightlife establishments to museums.  People do seem to be less worried, or more resigned to getting covid--but if vaccinated likely surviving from "just a cold"--so attendance at group events, indoor events, and restaurants and bars and retail is rising.

-- "From more space to socially distance to a systematic program for pedestrian districts (Park City (Utah) Main Street Car Free on Sundays)," 2020 
-- "Extending the "Signature Streets" concept to "Signature Streets and Spaces"," 2020
-- "Planning for place/urban design/neighborhoods versus planning for transportation modes: new 17th Street NW bike lanes | Walkable community planning versus "pedestrian" planning," 2021

Cities may have to double down on strengthening quality of life factors in order to maintain their base of higher income residents and to be able to continue to attract new residents ("Coronavirus intensifies the city vs. suburbs debate in Philly," "These Philly suburbs started closing their streets on weekends during the pandemic, and they might never stop," Philadelphia Inquirer).

Downtown Pella, Iowa.  WSJ photo.

And in some cases, companies especially in less well located places, are investing in amenities in order to be more competitive for workers, who might not otherwise consider them ("Facing Labor Shortages, Pella Reinvents the Company Town in Rural Iowa," Wall Street Journal). From the article:

Pella Corp. has offices and manufacturing plants in more than 30 cities across the U.S. and Canada. But one of the toughest jobs, say executives at this closely held maker of windows and doors, is convincing workers to locate here in its hometown, a rural city of about 10,000 residents 45 miles southeast of Des Moines.

The company and its controlling shareholders—members of the founding Kuyper family and its descendants—set out to change that. They have spent tens of millions of dollars in the past three years on housing, child-care centers, restaurants and an indoor entertainment center, among other things, to retain and attract new workers. More spending is on the way.

“We just didn’t have the amenities that people we were trying to recruit would expect,” says Chief Executive Tim Yaggi, noting that the manufacturer competes with major cities for talent....

The city of Pella’s population, however, has been little changed for decades, and some residents fear changes brought by Pella, the company, could wreck what makes the small city special.

But not meeting Pella Corp.’s needs makes it a flight risk, potentially eroding the local tax base, according to city leaders. The city’s annual budget is $47 million, a fraction of the company’s annual revenue of more than $1 billion. Pella Corp. is able and willing to fund community projects that otherwise might never come to fruition, company executives say.

The steps Pella, the company, is taking evoke memories of old company towns, where employers shaped nearly every facet of community life. It pays for the city’s annual fireworks production and its foundation donates to a range of local causes. ..

“The odds of someone staying in the job are much higher if they live in the community where they work,” says Mr. DeWaard.

Pella, the company, is also remaking the city to be more attractive for out-of-state recruits by covering construction and startup costs for some businesses. ...

Pella, the company, is steadfast with its development plans. It recently committed $6 million to help the city build a 90,000-square-foot recreation center, with three gyms, multiple pools and a rock-climbing wall. These efforts, executives say, will help woo talent.

And public safety.  We can't forget the importance of the value of public safety, for business owners and residents.  Businesses in cities like Seattle are closing because they say the physical environment around their businesses is unsafe ("Seattle business owner calls for action against crime crisis after two break-ins: 'You've got to have police'," Fox News).  

And people won't choose to live in cities if they fear for their safety ("3 in 10 District residents do not feel safe in their neighborhoods, Post poll finds," Washington Post).