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REAL ESTATE TRENDS: Housing Market

May 23, 2024

As we know, the pandemic had a profound effect on real estate, curbing residential sales and construction in the face of economic uncertainty.  And while home values picked up as things stabilized, domestic buyers must now confront a ‘perfect storm” of rising prices, elevated mortgage rates and lack of inventory.  Still, emerging trends seem to make the picture a bit brighter—whether you are looking to buy a home for you and your family or seeking an investment opportunity.

The Luxury Residential Market

Mauricio Umansky, CEO of The Agency, recently discussed the Los Angeles luxury market on CNBC’s “Fast Money” program, noting that buyers are paying cash to purchase homes at The Agency’s average sale price of $2.4 million.  Umansky, who can boast $5B in sales to date, as well as reality TV celebrity status, says that the supply of available properties remains low, while interest rates have soared.  Thus, financed transactions are also low and it’s “people with money” who are buying million-dollar homes.

Umansky also commented on The Agency’s international business, noting the “amazing” activity in Portugal and strong investment in Caribbean resort properties, as well as Mexico.  According to Umansky, the U.S. is drawing significant interest from buyers in the United Kingdom, but in general few international buyers are coming into the United States as yet.

New-Build Housing

According to residential real estate brokerage Redfin (www.redfin.com), nearly 33.4% of single-family homes for sale in the first quarter of 2024 were newly built, a share reflecting the fact that resale inventory has shrunk as homeowners sit on their existing mortgage rate.  The low supply of has caused residential prices to skyrocket, but builders tend to price fairly and are often more flexible about pricing than homeowners.  Builders may also offer incentives like mortgage rate buy-downs, amenity upgrades, and closing cost coverage to attract buyers.

At the same time, real estate pundits at CNBC offer the following advice for those considering the purchase of a new-build home (see CNBC “Personal Finance” link below):

  • Consider a smaller house (the median size of a home has grown by 150% since 1980 and has nearly doubled since 1970).
  • Be open about geographic location (suburban and rural homes are usually cheaper than urban homes).
  • Keep construction costs down (focus on structural elements rather than high-end finishes).
  • Be mindful of future costs (e.g., property taxes, utilities, upkeep and other operating costs, especially for larger homes)

Beyond the Matter of Cost

For most, home ownership is a milestone that represents one of the larger investments people will make in a lifetime—one that requires significant financial resources to achieve and sustain it.  We know that owning a home offers an opportunity to build credit and wealth, but what other benefits are people hoping for when they buy a home?

I found interesting a discussion on CNBC’s “Last Call” with David O’Reilly, CEO of Howard Hughes Holdings.  Reilly talks about the need to build flexible eco-systems into our communities and into new housing developments, as well as what it is that potential buyers now look for, their “needs and yearnings.”  Drawing from his own experience, Reilly says that both first-time buyers and older buyers are seeking a place to live that offers:

  • access to nature
  • shorter commutes and more time to spend with family
  • a self-contained ecosystem, a live/work/play environment with easy access to schools, churches, retail, recreation, etc.
  • affordability (for many, the most important feature)

Buying a home is expensive and that doesn’t appear to be likely to change soon.  Equally, many people still have a sense of economic uncertainty and are hesitant about making real estate moves even though inflation has gone down and wages are rising.  It will be interesting to see what happens when interest rates do go down and more inventory becomes available to aspiring homeowners.

CNBC, “Fast Money,” May 16, 2024, “Most luxury real estate buyers are using cash, says The Agency CEO Mauricio Umansky
https://www.cnbc.com/2024/05/20/what-buyers-need-to-consider-with-a-newly-built-house.html

Sola, Ana Teresa, CNBC, ‘Personal Finance,” May 20, 2024, One-third of single-family homes for sale are newly built, report finds. Here’s what buyers need to know.
https://www.cnbc.com/2024/05/20/what-buyers-need-to-consider-with-a-newly-built-house.html

CNBC, “Last Call,” May 20, 2024, Howard Hughes Holdings CEO: Flexibility needs to be built into our community plans.
https://www.cnbc.com/video/2024/05/20/howard-hughes-holdings-ceo-flexibility-needs-to-be-built-into-our-community-plans.html

Rothstein, Robin, Forbes Advisor, May 16, 2024, Housing Market Predictions For 2024: When Will Home Prices Be Affordable Again?
https://www.forbes.com/advisor/mortgages/real-estate/housing-market-predictions/