It is with great pleasure, and some queasiness, that I write my second blog post. The pleasure lies in my eagerness to keep writing for you guys. The queasiness, however, comes from the absolute chaos associated with first-time buyer experiences. As I’ve said, I’m new to the world of buying and selling homes, so I didn’t totally know what to expect when I started my research. Personally, I’ve never considered buying a house. It’s not because I don’t want to. I just decided to live in a city and pay rent. That’s, funnily enough, what made me feel like an adult. Living with my parents always felt kind of childish. I did it for a while after college because my job was closeby and money, but the entire time I wished I had a space that was my own. Funnily enough, that came with the cost of paying rent. Paying rent, especially in the Bay Area, came with the cost of my saving basically nothing. So I have never had anywhere near what I’d need to even think about buying. So I haven’t. What sucks is I’m at that age where my friends who did live with their parents and save every penny are now buying houses and I now look at them and think, “Wow. They’re buying their first house already, what an adult thing to do.” See what I did there. I didn’t live at home to save money because I wanted to feel like an adult. My friends that did do the “childish” thing are now buying houses. Now, I can’t help but look at them as much more of an adult than me.
The fact that my generation has to make those tradeoffs in order to just afford a home is part of the big problem, but I’ll talk more about that in future posts. What I want to talk about in this post is how even my friends who made the sacrifices necessary to buy a house are getting screwed. It’s a dire situation. From what I’ve read, if you’re a first-time buyer who needs a mortgage, your chance of winning a bid in any of the suburban markets right now is ZERO. It’s insane. The housing market is going bonkers, agents are struggling to conduct business and first-time buyers have no chance. Read on to see my deep dive into the drama. I try to outline some of the problems that need fixing or at least further investigating. Strap in, it’s going to be a bumpy article.
Market Madness
The right place to start off, I think, is with a quick summary of the market right now. Being readers of Notorious ROB, I assume most of you already know exactly what is going on, but for newbies to the real estate market like me, here’s the situation.
The housing markets have the most demand ever. Low-interest rates, a housing inventory shortage, and the pandemic have caused this to be the best seller’s market in history. Associate broker Vincent Cyr of Keller Williams, specifically, said to Yahoo Finance: “There has never been a better seller’s market in history. For those who wish to sell high and have more tolerance and acceptance from buyers for less-than-perfect homes, 2021 is the year to make it happen.”
Jason Gelios, a top-producing realtor with Community Choice Realty in Southeast Michigan added to that opinion with:
The housing market has experienced so many changes within the past year, including some that have never been seen before. Thirty-year mortgage rates hit historic lows at 2.65% the week ending Jan. 7, 2021, according to data from Freddie Mac, falling approximately one percentage point from a year earlier, when the 30-year rate was 3.64%. On Feb. 25, Freddie Mac reported the 30-year rate had risen to 2.97% but still remained near historic lows. For perspective, over two years earlier, in November 2018, the 30-year mortgage rate was close to two percentage points higher at 4.94%…The remainder of 2021 will see mortgage rates increase gradually due to the increase in economic spending. We anticipate mortgage rates on a 30-year fixed rate to get to 3.24% by summer.
So low mortgage rates are part of the reason for increased demand. Fine. Home prices are going up and plenty of people seem to be jumping at the opportunity to buy those homes. What’s the problem? Doesn’t that just mean the free market is working the way it’s supposed to? Sellers are making money, and buyers are willing to pay. What’s the big deal if they have to pay a premium? I have to pay a premium to get a nice car. It’s a standard business practice, right?
It turns out, it’s much more complicated. This is where I’ll turn to the meatiest content I’ve come across in a while. I mean, if you thought the end of Breaking Bad was stressful, just wait until you read what it’s like to be a first-time homebuyer right now. I’d potentially rather be stranded on an island with nothing but a volleyball to talk to than try buying my first house. If you’re one of the brave souls trying to make your first home purchase, may the force be with you. You’re gonna need to pull some Jedi mind control s*#t.
Message Board Madness
How do I know how crazy the market is? As I’ve mentioned, I’m not a real estate guy, so what could I possibly reference that will prove my point? Look no further than Moore’s Real Estate Review’s article entitled, Multiple Offer Madness. It’s just a published feed of an email chain of brokers. In other words, it’s a subreddit for real estate professionals. There’s some juicy stuff in there.
Let’s dive into the article with a keen eye for nightmare experiences. There are plenty of emails on the chain where agents admit to how difficult the situation is for buyers. In one example, an agent says her clients, “had literally 5 minutes to decide if they wanted to buy this home for which they would have to overpay, and knowing that it wouldn’t appraise [at that value].” For the biggest purchase most people make in their lives, 5 minutes isn’t quite enough to think it through. But, in this market, that’s all the time you’ve got. Those buyers did not get the property, by the way. In another scenario an agent says:
The haste to get a property under contract within 48 hours is contributing to this bottleneck of chaos. Buyers are pressured to make ridiculous offers on properties….[and] are pressured to make a decision before or at the time of showing, etc.
Another example shows:
My bad experience was an offer that took 6 days to get a response. The buyer had 15 minutes to look at the property and the deadline to submit an offer was that day. The seller was overwhelmed with all the offers and took his time to respond. A few weeks later, I checked MLS and the property was back on the market. The agent called to see if my client was still interested. Oops…maybe the property did not appraise for sale price????? This big balloon is going to burst soon.
Yeah, it’s nuts. To the point that the industry is fed up with it. The craziest part is, not even all the sellers are super excited about this new opportunity. Don’t get me wrong, they’re very pleased to be in such a hot market, but COVID is applying a lot of pressure for sellers to just take the cash and run. They don’t want to deal with much. Many don’t even want to show their house at all. One particular example showed such hesitancy. An agent says:
I recently had sellers that accepted an offer sight unseen with no showings. This is what THEY the CLIENTS wanted. They had small children and were VERY nervous about tons of buyers and their agents walking through their home with the current situation with COVID. So please tell me how you expect to convince sellers to allow showings for 7 days? Which could essentially mean over 100 people walking through the home.
This, in part, is an explanation for what is causing the difficulty for buyers. Maybe, because of the pandemic, the sellers are just freaked out by strangers walking into their homes right now. They just want the most cash they can find and then just be done with it. Seems reasonable enough. The same idea was mentioned at another point in the thread:
As a seller, let’s say with 2-3 kids, virtual school, full-time jobs, middle of a pandemic things are different. You are told you have to be out of your house for 7 full days while a minimum of 20 people a day traipsing through your ‘home’.
There it is, problem solved. The reason everything is crazy right now is because of COVID. That’s it. People don’t want to interact with strangers and they just want to get deals done. The problem is that it doesn’t factor in the low-interest rates and why tons of agents are referencing the same types of business patterns back in 2005/06 back when the market was showing similar activity. You can see in a lot of the posts above, they reference that this “big balloon is going to burst soon.” So it has to be more than just COVID, right?
More Than Just A Pandemic Problem
It might have a lot to do with the interest rates and stimulus. A broker on the thread did a better job of explaining it than I could. So read on. She says:
In my opinion, the whole process started with our Government printing trillions of dollars with no basis throwing it out on the public, bottom-line interest rates qualifying lower purchase point clients to jump into 100k more homes, people making short term gains in “no reason stock market gains”, builders increasing the prices crazy with the excuse of increased material cost are the big balloon that is going to burst soon. People prove again they have short memory forgetting 2000 & 2008. A buyer expecting or needing a mortgage should not try to compete with that.
Ahh, now we’re getting somewhere. The government’s printing of money and setting low-interest rates, combined with the pandemic, is to cause all the craziness. Now we have an answer, right? Well, there’s even more. In the same quote, the agent references “builders increasing prices” which is curious. Then it started making more sense when another broker mentioned this. She says:
I visited a Home Builder this past weekend and I was disturbed and upset (in silence) to learn from the onsite agent that the Builder was only allowing them to sell up to a certain amount of houses per month due to the limited amount of construction materials available, but at each release, a $10,000 increase was added. This is something I saw happening back in 2008.
Some go so far as to even question the morality of listing agents as well.
Honestly, if I was the seller ‘I’ would question the listing strategy and the intentions of the listing agent, no seller or buyer should feel pressured to make this type of decision in haste. It’s my opinion that it is a ploy or another form of controlling the market.
So, the real problem is homebuilders. They are artificially creating a shortage so their returns increase with less work, but say there is a “materials shortage” as an excuse for not creating more supply. Similarly, the listing agents are just trying to move houses as quickly as possible. In doing that, they aren’t truly serving the consumer. I have to say, this makes the most sense. If the economics work out such that the builders get more returns by causing a shortage of inventory, then it could very well be what’s going on. That could be where the deviancy is most alive in the business. That could be causing all of the madness, in addition to COVID and low-interest rates, of course. This does need further investigation, however. I have heard that “materials shortage,” is also code for, “the zoning laws are so strict here that I’d lose money if I build.” I’ll look into that for a later piece. For now, let’s leave it at, for some reason, homes aren’t being built and it’s creating a big shortage which is driving up home prices and demand. Not. Good.
American Homeownership Nightmare
The last thing worth mentioning, however, is how absolutely painful this reality is for Millennials or first-time home buyers. I think I’ve got some hypotheses as to what is causing the problems. Again, I’m not trying to say I’m right, but something needs to be done to help out first-time buyers. Throughout the article, agent after agent constantly references how bad they feel for them. Among some of the more notable quotes are:
There may be other agents on here like myself, but the biggest losers IMO (for now) are the first-time buyers. I have more buyers now than ever (this time of year) and there is nothing for them to view and when there is they cannot compete…not even close.
I’ve had 2 first-time home buyers this year decide to not buy after learning about the market. They are saving money for next year because they just can’t compete right now. It makes me sad that young, qualified buyers are missing out because they can’t write a huge due diligence check.
I have a cash buyer that is being turned away. The American dream of becoming a homeowner is the American Homeownership Nightmare.
As usual, the reality of the economic situation comes back around to Millennials getting the short end of the stick. Either commit your life’s earnings to overpay for a home you never see or wait for the market to calm down and then pay higher interest rates. The crazy thing is, it is really, really, really hard work to be a Millennial in a position to buy their first house right now. If you have that much cash and you didn’t inherit, it means you either worked your ass off in some high-paying job that is not easy to get or maintain, or you saved every single penny in your life up to this point. Both involve serious, consistent sacrifices. To have worked so hard, not splurged on dinners, a nice apartment, Netflix, etc, and then find out you can’t even afford to buy the house anymore because the market is going nuts is heartbreaking. It’s a tough pill to swallow. It’s not good for the future of America.
Sure, the pandemic is in part to blame for the madness, but, for some reason, I get the feeling the inventory shortage was very avoidable. My guess would be a combination of strict government regulation with zoning laws or builders themselves making up excuses not to build homes is to blame. I also don’t know if the low-interest rates are sustainable. You can easily make an argument they were necessary, but maybe we should start pulling them up? Either way, the housing industry has to have some serious conversations about how to stabilize the market and provide opportunities for average consumers to buy homes and take part in the American Dream. I’m going to try and understand why America has an inventory shortage. Stay tuned as I dig deeper to answer this question.
Thanks for reading! Let me know what you think about the housing market right now in the comments. Do you agree with my analysis? What am I missing? Does the government have a more serious role to play in preventing housing construction? Are low-interest rates a bad idea? Should we be printing so much money? How would you solve the housing crisis? Also, if you are a Millennial who has some harrowing house buying stories, please reach out to me! I’d love to talk at pedro@7dsassociates.com
Thanks again and stay tuned for my next piece!
–dRo (short for Pedro. It was my nickname in college so I’m going to start signing with that.)
For my music video I’m not going to post a music video, but one of the funniest broker negotiation parodies I’ve ever seen. It’s real estate related comedy at its finest.
1 thought on “Housing Market Craziness…Do Millennials Stand a Chance??”
Hi Pedro!
I live west of Boston in the suburbs, bought my house in 1998. Prices then were reasonable here. I can’t imagine coming out of college and in a few years being able to afford houses around here. The price of the house / salary ratio has increased. Builders are tearing down small 50’s starter homes and putting two houses on one lot here, but the semi detached houses are more than 600,000 each. There is zero thought about building more reasonably priced homes. When I got out of college, there were more affordable homes being built. The town we bought into has increased in population from 19000 in 1998 to over 33000 people now . There are no more buildable lots and when someone proposes mixed use development that includes housing everyone freaks out about not allowing them to build homes that families with kids will buy and add stress to our schools. (aka higher taxes)There is a lot of NIMBY ism that I find really sad because the same people that are freaking were able to move into the town affordably and raise their kids here. We need to have compassion for the next generation because the population is growing and where the heck are the next generation supposed to live? I am 100% behind building of more affordable “starter” housing. Millenials and gen z shouldn’t have to be renters all their lives if they don’t want to be. I have also noticed a trend (because of the flipper shows and airbnb) of everyone thinking that they can make a buck with real estate, either flipping it or doing short-term rentals. So, more competition / demand for beat up homes and less chance of a homeowner being able to buy the house and sweat equity it themselves! Instead they get beat out by a wannabe flipper and then relists the home out of the price range. Also, airbnb also increased demand for homes in desirable areas. I am 100% for barring non-owner occupied short term rentals in residential neighborhoods. Or places that have traditionally been used for primary housing. If you rent a room and live there, that is fine, but I hate airbnb! I am sure people who were lucky to be able to buy the homes to rent love it, but, doing so they have taken away from supply of long term housing. Not good! I am sick of everything being about making a buck.
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