The affordability challenge is discussed in this month’s National Association of REALTORS® Power Broker Roundtable.
LP Finn, COO, Coach, REALTORS®, Long Island, N.Y.
Mark Stark, CEO, Berkshire Hathaway HomeServices Nevada Properties, Las Vegas, Nev.
Jim Imhoff: Brokers and agents in most parts of the country still face a shortage of inventory. New-home starts lag behind the need, increasing the competition for existing homes. Yet as interest rates stay relatively low, even rising prices don’t seem to be turning off buyers—and what’s interesting in this relatively robust season is that affordability is playing out a bit differently in various market areas and among different consumer groups. So we thought it might be an interesting time to do a geographic spot-check. Is affordability the issue of the day? LP, let’s start on the East Coast.
LP Finn: Affordability is always an issue, but it’s a tough question to answer across the board. In our market, it’s just a great time to buy. At the high end, buyers can pretty much get what they’re looking for, though everyone looks for “value buys” and there’s concern about the property tax deductibility cap. At the lower and middle tiers, there’s a lot of movement, especially among first-time buyers, who can afford more at today’s interest rates.
Steve Brown: There’s no magic answer, of course, but for a broker, I have to agree: It’s a good time to be in the business. The market remains strong in our Midwest region, and strongest at the low end. I’d say 30-35 percent of our market are first-timers. They’re qualifying left and right, and paying premium prices, full price or higher. It’s a phenomenon I’ve never seen before.
David Cooper: It is a phenomenon. In Kansas City, where the average selling price is under $300,000, there’s increasing activity not just among first-timers, but also among move-up buyers and even millennials, who are snapping up condos and small units. Multiple offers are the order of the day, and qualifying is not the issue. It’s demand that’s greater than supply.
Mark Stark: That’s true in all our markets but especially at the low end, where affordability is not the problem. The challenge is no new inventory. There’s not enough new construction because, given all the restrictions, builders can’t build and make a profit—so, the fact is, we’re dealing with super-low inventory at a time when the market is super-hot.
DC: I hear you—and for us, the squeeze is across the board. Properties are moving so fast, even at the high end, that a right-priced home at the million-dollar level doesn’t last long. At the low end, it’s a seller’s market for sure. I had an agent so frustrated just the other day because every property she tried to show her qualified buyers was sold before they had a chance to see it.
JI: So we all agree it’s a good time to buy and it’s great for our business overall. But you’re right David—move-up buyers are hesitant to put their homes on the market, because they’re not sure they can find what they want. That’s also true for downsizers, because there’s so much competition at the lower end. So the lack of inventory at all levels is putting a damper on both agents and prospective buyers. But if that’s the de facto issue of the day, where do we go from here?
SB: We need to get builders building, for one thing. The industry needs to continue advocating against high property taxes and restrictive land-use regulations, among other things—and perhaps lobby for denser housing developments, with homes built closer together instead of on larger lots.
JI: True. We need something like 1.4 million new homes each year, and since the recession, we are still 5-6 million short. The shortage of building starts stems from a combinations of factors: lack of available building sites, a shortage of qualified tradesmen, and, to some degree, the cost of development driven by municipal regulations that are now estimated to add 30 percent to the price of a new home. We all need to work on these issues, too!
LP: When you look at price, cost and value ratios, we need to remember, too, that on the upper end of the market, because of higher tax rates and costs that are no longer deductible, the cost goes up even when price goes down. There’s got to be a better way than what we’re seeing after the latest tax act.
MS: On the whole, however, I can only repeat it’s a great time to be in real estate. Our April sales are higher than a year ago.
DC: Another thing that’s encouraging is the numbers of millennials who are coming into the market—and in today’s very competitive environment, they seem to be quite willing to get offline and work directly with an agent.
SB: There you go. There’s an upside to everything.
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