From Hot to Not: Navigating the Fluctuating Temperature of Real Estate’s Historically Strong Markets
As COVID-19 altered everyday life across the United States, even the most seasoned real estate veterans didn’t quite know what to expect from their industry. It wasn’t long, however, before the market offered its response.
Instead of being intimidated by the idea of purchasing a home during a global pandemic, buyers became more motivated than ever to land a new residence or vacation property—but not necessarily where you might expect. Cities that have long experienced blistering hot sales saw their market’s temperature cool.
“COVID-19 has been an unexpected catalyst, one that has caused a historic and Dickens-esque tale of two cities,” says Chris Stuart, CEO of Berkshire Hathaway HomeServices. “It has been the best of times for lower density suburbs, certain resort committees and more respiratory friendly rural areas, as waves of buyers seek greater space and safety. Simultaneously, it’s been the worst of times for some high density real estate markets, as both employees and employers are discovering that the newly found efficiencies of working remotely may voluntarily extend well past an anticipated vaccine.”
Take San Francisco. In June 2020, sales were down 8.9%, year over year. New York City fared much worse, with the number of closed sales in the second quarter of 2020 down 54% compared to the same period last year. The median sales price in the city fell to $1 million, down 17.7%, compared to the same time last year.
But what’s a city seller to do—put their home on the market or try their hand at renting their place out? And for those who do leave the city, what steps should be taken to ensure they find the right next home—for the right price?
Offering their expertise on the industry’s remarkable twists and turns are Joan Docktor, President of Berkshire Hathaway HomeServices Fox & Roach, REALTORS, whose company serves Pennsylvania, New Jersey and Delaware; Ellie Johnson, President of Berkshire Hathaway HomeServices New York Properties; Mary Lee Blaylock, President and CEO of Berkshire Hathaway HomeServices California Properties; and Michael Slevin, Owner and President of Berkshire Hathaway HomeServices Colorado Properties.
Q: What advice do you offer to sellers in softening markets, like those wanting to list a condo in Philadelphia’s Center City, about how to get top dollar?
Joan Docktor: I would advise them similarly to how we react in a buyer’s market. Sellers have to make sure their property is painted, fixed up—essentially, make it crisp. In Center City, what I’m hearing is that if a property is priced well, it’s staged well and it shows beautifully, it will sell. While things have “cooled” in Center City, houses are still selling quickly. It’s condos that are the toughest sell right now. You can get it sold, but it’s going to take longer, and I would advise sellers to keep that in mind going in.
If you don’t have to sell in this market, I would hold off. You’re seeing growing inventory in condos, so those hitting the market right now are one of many. Up until COVID-19, there would be one or two for sale, per neighborhood, and now you might see five for sale. Restaurants are beginning to open at 25% capacity. I’d recommend to sellers, if they can, to wait and see when the stores come back and the arts come back to Philly, then sell.
Q: Ellie, so much has been written about New York City residents “fleeing” to the suburbs, but many city dwellers don’t want to leave. They just need more space for homeschooling and working from home. For those who want to “upgrade” in the city, what opportunities are there, and how should they balance trying to sell one city property while buying another during a pandemic?
Ellie Johnson: For those who want to “upgrade” and remain in the city, there are two opportunities that come to mind, in addition to a traditional sale. One, asking the next-door neighbor if they would consider selling their apartment and combining units. Secondly, buying a studio or one bedroom apartment in the same building or nearby, for use as a home office or study for their children.
Understanding that New York City is currently a buyers’ market, any investment in upgrading or acquisition would be a great long-term investment. However, to execute this type of transaction, the buyers would need plenty of liquidity or equity in their existing home to be able to borrow against this equity. With interest rates at an all-time low, the buyer will have the opportunity to borrow money at as low as a 2+% interest rate, provided they have excellent credit and job stability. (Please consult with your financial advisors, as not all loans are created equal.)
If a family decides to forgo the first two examples and simply wants to sell their existing home and purchase a larger one that is in move-in-condition, they would have to be prepared that their home might be selling at approximately 25-30% below market value from a year ago; however, they will be making up this loss in their new purchase, as they would be buying a larger home, because that seller is also selling at the same discounted amount.
Q: On the West Coast, we’ve seen softer sales in San Francisco, but what about the rest of the state? Are condo sales all along the coast suffering similarly since people are desiring more space and fewer neighbors?
Mary Lee Blaylock: Buyers are still looking to purchase condos as investment properties to rent them out. It’s such a great time with low interest rates to do that, so if someone had been thinking about investing in a property like a condo to rent out, I’d advise them that now is a great time to do that. Are there more condos on the market in California? Not more, just consistent movement. It’s not as fast and furious as pre-COVID-19, but it’s not slow either. It’s just a wonderful, good clip.
Q: Michael, your market in Vail Valley, Colorado, and other similar resort communities is much hotter than this time last year. As city dwellers look to places like Colorado as strong options for both primary and secondary residences, what steps should they take to ensure they are getting the right place at the right price?
Michael Slevin: Right now we’re experiencing a large demand, with very little supply. Available listing inventory, year over year, is down about 23%, but our contracts from a year ago are up over 60% and the dollar volume is up 76% from a year ago. We have seen a surge of new buyers coming to the Vail Valley from a variety of markets, many our traditional feeder markets on the East Coast, Dallas and Houston, Florida, California, Chicago and other parts of the Midwest. Many of our buyers already own homes here and are looking to make the valley their permanent residence, selling what was once their second (or third or fourth) home and upsizing to accommodate their family’s day-to-day needs.
Because many of our buyers have a familiarity with the area, it then comes down to working with a knowledgeable broker who understands our market’s unique attributes and pricing as well as an advisor who has the technological capabilities of “showing” the property remotely. The speed of our market demands a broker who has an inside track on new listings and opportunities not available to the general market. Buyers who are clear about their next move—meaning their desired area, their next home’s style, location and other details—will ensure the best possible result. That’s true for a buyer who is physically here or purchasing remotely.
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