Trending: Why are Home Sales Increasing?
“The national median home price rose 8.2% year over year to $323,800 in July (2020). This is the third time in four months that prices have hit a new all-time high.” — Redfin
In my previous blog “Trending: Is Now the Right Time to Buy a House?” I promised that in an upcoming blog, I’ll discuss in detail why I think [home sales are rising] and what this rising home sales trend means for you.
Here we go.
For this blog, I sat down with Shawn D. Morey of Dwell Real Estate Group. Mr. Morey and I met while both pursuing USC’s Dollinger Master of Real Estate Development program in 2016. He is a Realtor and Principal Broker at Dwell Real Estate Group. He has over 10 years of real estate brokerage and development experience, and is my go-to expert for all things related to architecture, multi-family brokerage, property management, development, and investing.
Housing Economics 101
A quick refresher:
- If demand for a product goes up and supply remains the same, prices will increase.
- If demand for a product remains the same and supply goes down, prices will increase.
- If demand for a product goes up and supply goes down, prices will increase dramatically.
Residential homes are currently in scenario #3 and Shawn Morey shares his boots-on-the-ground Realtor perspective.
Increased Demand for Homes
There are several demand drivers for homes today:
- Interest rates are at historic lows, allowing borrowers to purchase more expensive homes or to get more aggressive with their bid offer.
- The stock market is near all-time highs so investors are looking to homes as a relatively safe alternative to reallocate assets.
- Many potential buyers initially ask, “what if I wait a few months and let prices go down?” Shawn helps them realize the impact of today’s low interest rates relative to price reductions. He calculates how much more money they save over the life of the loan compared to any small potential reduction of purchase price. Typically, clients conclude that they want to buy now and bid aggressively.
- In today’s market, buyers have two choices: increase their offer price or lower their expectations for location and quality.
As an anecdotal reference point, Shawn’s affiliate recently listed a house for sale in the Eagle Rock neighborhood of Los Angeles. He put it on the MLS at 6am and by 12pm (lunchtime!) he had 77 offers and most were over asking price. He noted an increase in “Sob Letters” (that’s industry jargon for a nicely written letter from the potential buyer pitching a personal/family story in the hope it will score them an accepted offer). Someone even sent flowers to the selling agent just to get noticed!
It is imperative to have both a great realtor agent and in-place lender when you make an offer. If you don’t have a pre-approval then many sales agents won’t even consider you.
Lower Supply of Homes
- Potential sellers are hesitant to list their homes due to Covid-19 scares. They don’t want people coming into their homes. Even if the agent pitches a virtual open house home showing, potential sellers still don’t want random people coming in to stage their homes and doing what it takes to properly prepare a home for sale.
- There are so many other issues going on both publicly and privately that people simply don’t want to think about it and deal with the stresses of selling a home during Covid-19.
- Some homeowners tend to think that the economy is in a terrible place and, if they wait, they can get an even bigger offer in the future.
- Open Houses / Home Showings have also gotten a lot tougher. California Association of Realtors, the governing body over all CA Realtors, is requiring that agents wear booties, wipe down services after each showing, agents need to have a new Covid-19 specific document called Form PEAD completed, and only 2 people are allowed in the house at any time.
- Lastly, home inventory is low because people are just refinancing instead of selling due to the low interest rates.
What does this mean for me?
I‘m personally listing my Riverside, CA property to see if any crazy offers come in. And in this market, that is VERY possible.
If you own a property, I strongly suggest that you at least look into selling unless you have a buy and hold forever strategy, or if you’re going to wait for the next cycle for this opportunity to come up again.
What’s Huber’s strategy? Sell, capture equity, down-size, and be very patient.
Contact Shawn Morey if you have any questions as to the specific home selling process and for any additional real-time market shifts that he’s seeing.
Disclaimer: I am not collecting any referral fees from Shawn. He is just a close friend that I want to see do well and that I personally trust — he is a rare combination of both brains and ethics!
I’m happy to engage with you in the comments so that everyone can learn. If you prefer to share privately, feel free to email me at firstname.lastname@example.org
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