“Contrary to what many have predicted, the millennial generation may riot be a new tribe with housing preferences and a culture unlike any other generation. They seem to be mimicking the actions of their parents in many ways.” Home Innovation Research Labs
TOP STORY: The “New Normal”
If there were a reward for the most overused expression of 2020, we would nominate “the new normal.” Yet it is certainly a pandemic-apt description of everything from the way students learn their ABCs to Sunday afternoon television viewing. Real estate has its own new normal although it wasn’t determined at a school board meeting or by a vote of NFL owners. The way homes are being listed and marketed has risen out of the necessity of dealing with the health-related fears of buyers, sellers, real estate agents, lenders, and local rules about social distancing.
Pandemic or not, this has been a good time to both buy and sell a home. From the seller’s perspective, there is a lot of demand and little competition due to low inventory, so marketing times are generally short. From the buyer’s viewpoint, low interest rates have countered rising home prices, providing much greater affordability than we have seen in several years.
We don’t yet know the ultimate results of COVID-19 on the housing market, but both facts and rumors abound. There is a lot of anecdotal reporting on people moving out of densely populated areas and into the suburbs, but not yet much proof. Ditto regarding the fading appeal of multifamily properties or if houses will have to adapt to suit their more at-home inhabitants. Prices, again at this writing, have remained stable, certainly although the rate be slowing.
We know, however, that the process of homebuying has changed at every step, from looking at possibilities to making offers, from home inspections to obtaining a mortgage loan. In most areas, at least for now, the open house is dead, which not everyone thinks is a bad thing, and while some of the coronavirus “make dos” will be temporary, many may become standard practice. This could make homebuying more pleasant and efficient in the end.
That the market has continued to be strong, that it is s till possible to safely buy or sell a home, is in part due to some creative workarounds of what used to be routine some we found in buying spectrum.
We have long been accustomed to buying books, shoes, and furniture from our laptops and phones and the pandemic has added groceries to that shopping list. Buying a house without ever stepping through its doors is still a bit of a reach (although Realtors say it is happening), but technology is certainly cutting into the foot traffic.
We have been prepping for this, although unwittingly, from the early days of the internet. Most buyers start their search online, using national and local office websites to narrow down home style and neighborhood choices; eliminating houses that are clearly unsuitable. Now the remote capabilities are expanding dramatically.
Static pictures still predominate individual home listings, but rather than a picture of the front and back of the house, and a few badly framed interior shots, most home listings now feature galleries with dozens of photos. Every room is accounted for, often shot by professional photographers who throw in a few aerial pictures of the lot and neighborhood taken from drones.
Video tours have been around for 20 years but were often used only for higher priced homes. New technology has made them easier and cheaper than ever and smart home sellers should probably insist that at least a brief one accompany their online listing. This isn’t just to pique a buyer’s interest. Seeing the full sweep of a kitchen or getting a better feel for bedroom sizes can satisfy curiosity and weed out the mildly interested. A serious buyer, however, will probably need more than photo galleries and simple videos before writing an offer.
Technology to the Rescue
There are now stunning 3-D tours available that allow a buyer to walk the rooms, halls, and yards of a potential new home without leaving the couch in their current one. In some ways these programs (which are surprisingly inexpensive) are better than an actual house tour. They can provide bird’s eye views of multiple rooms or the entire house layout. Wonder if your favorite rug will fit? Pull up the virtual ruler and measure. Curious about the flooring material? Click and read a description.
Real estate agents are conducting individualized remote visits using Face- Time or Skype. As they walk through “filming,” customers can ask questions, revisit rooms, get close-ups of appliances, paint colors, or other features as dearly as if they were there.
Sellers must do their part to make these visuals work, preparing for a virtual tour as carefully as a real one. The house should be dean and decluttered, curtains opened, and windows washed. Camera friendly replaces curb appeal—lawn mowed, shrubs trimmed, kids’ toys stowed out of sight.
Professional staging is a proven marketing plus, but in the days of pandemic, sellers may not want another body in the house, touching things and moving them around. Now there is (and we aren’t sure how we feel about this) virtual staging. The seller or agent takes digital photos of empty (or badly furnished) rooms. A professional stager uses special software to add furniture, artwork, shadowing, and shading to make the rooms look perfect. Maybe they also attach a disclosure?
A major home builder is responding to the new normal by including an optional home office in all its new home plans. KB Homes is rolling out the feature in two of its California developments and plans to take it national.
Standard features include a desk, workstation, a lot of built-in shelving, an electrical and technology package with ultra-fast USB charging outlets, receptacles, and data/teleport. Buyers can add additional features including soundproofing, a beverage center, half bath, and separate outdoor entrance. The standard package is going to cost, depending on the plan and the city, between $2,000 and $3,000. Mary Salmonsen, Builder Magazine
Look, Don’t Touch
It is understandable that these remote technologies won’t always do it; most buyers will need to physically visit the home so they, the seller, and agent must all comply with some commonsense rules. Sellers are advised to leave the house and all lights on and doors open, including closets, to minimize the touching of surfaces. Buyers must limit the number of people they bring along and are advised to leave the kids at home, touch things as little as possible and maintain social distance. In fact, in California, all visitors are required to sign a Coronavirus Property Entry Advisory and Declaration (PEAD) form which sets out the rules prior to any visit.
As for real estate agents, they are advised to provide sanitizers and disinfect surfaces after the prospective buyers leave. Fancy brochures and listing sheets are out, all written information must be distributed electronically. Agents are limiting showings to seriously interested and genuinely prequalified buyers. In fact, proof of funds, and mortgage pre-approvals are being required to visit many homes.
Pending at a Social Distance
Coping with the pandemic doesn’t stop with a successful offer, and the details involving financing and closing have changed accordingly. The GSEs Fannie Mae and Freddie Mac have extended several of what they call “flexibilities” to their lenders. These include allowing the use of exterior only or computer-generated appraisals in situations where an interior visit is not possible. They have also suggested alternatives for employment and income verifications and extended the expiration dates for some underwriting documents to over 60 days in recognition that candidate’s employers may be operating remotely or with reduced staff. These “flexibilities,” originally announced last March, have been reing two days. As a measure of how fast the Fed moved, in the 2nd round of Great Recession QE in 2010 and 2011 it purchased only $600 billion over eight months.
A week later the Fed announced that its QE would be unlimited. It would purchase as many Treasuries and MBS as necessary to support smooth market functioning. It also expanded its purchase target to include corporate debt and commercial MBS for the first time, making sure businesses have easy access to credit.
TALF is back for the first time since the Great Recession and its set of acceptable loans was broadened. There is also a Municipal Lending Facility, aimed at giving state and local governments access to credit so that they could continue to function despite falling revenues and rising costs. Several other new lending facilities were also created to keep credit flowing to various markets.
AFFORDABLE AND STYLISH
A San Diego demonstration project is providing “work force housing” at rent that is 30% less than its closest competitor. Architect Jonathan Segal has designed a high-rise with 42 400 sf efficiency apartments, five of them dedicated to very low-income tenants, retail space, and a 3-bd single-family house. The project utilizes a combination of both passive and active energy-saving and seeks to eliminate parking which takes up space, drives up costs, and delays construction.
The tenant base thus far is diverse, from single mothers to elders on fixed incomes—and is encouraging for future projects of this housing type. Symone Garvett, Builder
From a Different Vantage Point
Changing perceptions is also a monetary tool. For example, after each of its FOMC meetings, the Fed issues “forward guidance” about their potential actions. In September it said it would keep rates near zero for at least three years and will extend its lending and purchasing programs as long as necessary. Sometimes saying you will do something is almost as good as actually doing it
Out of Bullets?
While health officials say the pandemic will be around for a while, at this writing the economy has improved a bit. But what if the troubled economy deepens and, as some economists have suggested, slips into the first depression in 90 years. Will the Fed have other monetary management tools it can use?
According to a lot of people who are supposed to know these things, it does have other measures at its disposal. One of the most frequently mentioned is dropping interest rates below 0%. Negative rates have never been used in the U.S., but the European Central Bank and the Bank of Japan have been experimenting with them since 2014 and 2016, respectively.
Under a negative rate, investors must pay borrowers to take their money. For example, if a rate were -2% and you deposit $100 in your checking account (i.e. lend the bank your money) you would only get back $98. Ideally this would make it more attractive for you to spend your money, stimulating the economy, than parking it in a bank. If you borrow $1,000 to buy new furniture, you will pay back only $980.
THAT’S BOOM WITH A “Z”
The pandemic and the remote work possibilities created by high tech applications are leading to a new phenomenon. Former tourist and recreational spots, such as Truckee, California, Cape Cod, and Aspen are becoming hotspots for year-round living, places where residents can work remotely in a desirable area, often far from the office. Home prices in Truckee, for example, have risen by over 34% in the last year due to an influx of former Bay Area residents. National Public Radio (NPR) says Realtors and journalists are calling these newly hot housing markets “Zoom towns.” Greg Rosalsky, Planet Money
Former Fed chairpersons Ben Bernanke and Janet Yellen (now U.S. Secretary of the Treasury) have proposed other steps, most of which are merely technical ways of either injecting money into the economy or creatively controlling interest rates. One is to restart the Great Recession era Term Auction Facility (TAF). The Fed used TAF to auction 28-day and 84-day loans to banks in good financial condition, distributing liquidity to banks when other markets were under stress.
The simplest and most likely of the tools available, and probably a popular one as well, is the latest Federal Stimulus Package, the details of which are still being hammered out as of this writing. If a new bill is approved by March 14, it would renew the federal unemployment aid without a gap in funding. Stay tuned.