When the COVID pandemic hit, it set off a dramatic uptick in U.S. housing prices, and home price growth is just now beginning to decelerate.
And although U.S. home values are predicted to rise by only 2.9% in 2022 (versus 19.8% in 2021), buyers will still be navigating a seller’s market, according to Realtor.com, a real estate listing site owned by News Corp. Concerns around the Delta and Omicron variants continue to affect return-to-office plans, and many people are still working remotely, which could be a factor in home sales.
But not all areas of the U.S. are headed in the same direction when it comes to homebuying. While home prices are cooling down in New York and Hawaii, they’re heating up in Maine and Massachusetts. If you’re looking to make a real estate investment in the coming year, there are a few markets that are worth taking a closer look at because of their anticipated price increases.
With a predicted home price growth rate of 10%, according to Realtor.com, Portland is the front-runner in terms of anticipated growth in 2022. The most populated city in Maine, Portland is known for its scenic coastline and is a famous summer getaway destination. U.S. News ranked the city No. 8 in its annual Best Places to Live list, and the Portland market has seen an influx of remote workers getting out of pricier markets.
Providence, Rhode Island
The capital of Rhode Island and its most populous city, Providence is expected to see its home prices grow at a rate of 9.5% in the next year, according to Realtor.com. The Rhode Island Association of Realtors reported that the number of out-of-state buyers from places like New York, Massachusetts, and Connecticut increased by 69% in 2021, and called the state as a whole “a haven away from the city.”
Salt Lake City, Utah
The capital of Utah is known for its outdoor recreation, from hiking to skiing. Coming in at No. 23 on U.S. News’ Best Places to Live list, Salt Lake City is expected to see home prices grow by 8.5% over the next year, according to Realtor.com. Salt Lake City currently has about 200,000 residents, but Utah’s population is steadily growing, and the capital is projected to reach 1.7 million people by 2065, according to the University of Utah.
Located in central Massachusetts a little under 50 miles from Boston, Worcester will see home prices grow 8.2% in 2022. Known as the “Heart of the Commonwealth” because of its central location, Worcester is the second-most-populous city in Massachusetts after Boston. The city was also included in Realtor.com’s Top 20 Hottest Housing Markets list earlier this year.
Homeowners saw average home prices skyrocket nearly 20% through the third quarter compared to a year ago, according to the Federal Housing Finance Agency. It was the largest annual home price increase in the history of the agency's House Price Index. And, in some hot markets, the price increase was double that.
Many prospective buyers left the market dejected and without a home to call their own. As a result, demand for rentals surged and rents went up across the country.
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"It was an insane year," said Matt Holm, an agent with Compass in Austin. Last January, he put a smaller five-year-old home on the market at $425,000, higher than comparable sale prices, and was flooded with offers. "I stopped counting at 35 offers," he said. The home sold for $545,000, a 30% increase over the list price.
Another buyer, who bought a lakefront luxury home for $6 million in 2020, was offered $9 million a few months later and $11 million two months after that by buyers desperate for a lakefront property, Holm said.
"My sellers said, that's a lot of money," Holm said. "They wanted to sell and get something as good or better. But they realized they shouldn't sell because to get something a little bit nicer than what they had was going to cost $18 to $20 million. That is a remarkable jump for a calendar year."
Without a doubt, the housing market was on a wild ride in 2021. Here's what to expect as we head into the new year.
No more record low mortgage rates
The year began with the lowest interest rates on record, with average rates for a 30-year fixed rate mortgage at 2.65%. But they didn't last long. By April 1, that had reached a 2021 peak of 3.18%. Rates have fluctuated since, with the 30-year fixed at 3.05% last week, according to Freddie Mac. And we can expect rates to move even higher in the new year.
The Federal Reserve has given several signals that its pandemic monetary policy will come to an end as it works to curb inflation. Ultimately, that will push interest rates higher.
The Fed's revised policy won't put a dent in the pockets of people looking to purchase a home within the next few months, but they might want to act soon, said Melissa Cohn, the regional vice president and executive mortgage banker of William Raveis Mortgage.
"Mortgage rates should remain range bound around 3% through the end of the year and hopefully through the first two months of 2022," said Cohn, who anticipates rates to increase by up to a half a percentage point over the next couple of months.
Similarly, Lawrence Yun, chief economist at the National Association of Realtors, expects the 30-year fixed mortgage rate to increase to 3.7% by the end of next year, but noted this will still be lower than the pre-pandemic rate of around 4%.
"Increased mortgage rates, coupled with inflation eating away at savings, will take a toll on buyers," said Allison Salzer, a Compass agent in San Francisco. "It will affect the lower-priced and median-priced home purchasers more than the luxury buyers."
Inventory will remain tight
Even though more properties became available as the spring home buying season heated up this year, there were also more people looking to buy, creating fierce competition and pushing prices skyward.
There were so few homes, people were taking extreme measures like offering to buy the seller's next home for them, giving thousands of dollars to competing buyers to walk away and paying as much as $1 million over the home's asking price. One home in Maryland received 76 all-cash offers.
Inventory was tightest at the lower end of the market. Homes priced under $200,000 have been hard to come by, with the number of available properties falling 19% this year compared to last year, while there was a 40% annual increase for homes above $600,000, according to HouseCanary, a real estate data company.
While the inventory picture is expected to improve in 2022, it isn't expected to perk up by much. Inventory will remain limited and growbyonly 0.3% in 2022, according to a Realtor.com forecast.
"The greatest factor I see affecting the 2022 housing market is the low inventory," said Paulo Prietto, a Compass agent in Orange County, California. "While inventory remains low, buyers will become more accustomed to the lack of choices and will continue to aggressively compete to purchase homes."
As long as that happens, prices will continue to go up.
While existing home sales reached a median price of $353,900 by November, up 13.9% from a year ago, new construction home prices were even higher. New construction homes hit a median price of $416,900 in November, according to the US Census Bureau, about 19% higher than a year ago, and another new record.
While we won't see the double-digit gains that were made in the past year, prices are expected to keep rising in 2022 at a slightly more moderate pace.
A group of 20 top economic and housing experts brought together by the National Association of Realtors projected that median home prices will increase by 5.7% next year. The NAR survey participants said they expect the housing market and broader economy to normalize next year as the Fed tries to tame inflation.
"Slowing price growth will partly be the consequence of interest rate hikes by the Federal Reserve," Yun said.
First-time buyers will continue to face challenges
The prevalence of all-cash offers, few available homes and skyrocketing prices pushed many first-time buyers out of the market in 2021.
By the end of November the share of first-time buyers had fallen to 26% from 32% a year before, the lowest level since the National Association of Realtors began tracking in 2008.
"We are creating a divided society," said Yun. "People don't feel like they are participating in what they consider to be American life through homeownership. All their work to build up savings can feel less meaningful in the face of rising prices."
Not only were prices rising faster than people could save for a down payment, many mortgage types favored by new homebuyers, like FHA and VA loans, were often passed over for all-cash deals or conventional loans.
The inventory of homes at the lower end of the price range was so tight that the number of sales priced between $100,000 and $250,000 were down by nearly 20% in November, according to NAR.
And while new construction homes are now starting to come on line, most are priced outside of the typical first-time homebuyer's budget.
"Builders are focusing more on high-priced houses, with the percent sold for under $300,000 falling to just 14% from 33% a year ago," said Robert Frick, corporate economist at Navy Federal Credit Union.
But many hopeful homebuyers are saying they will be back in the spring, armed with the knowledge they gained from a frustrated search this past year, according to a recent survey from Realtor.com
"Despite a challenging year, aspiring first-time homebuyers are surprisingly optimistic about 2022," said George Ratiu, Realtor.com's manager of economic research. "They're looking at the new year as a fresh opportunity to make their dreams of owning a home come true."
The colors we surround ourselves with can directly impact our emotions. Choosing the right dining room paint color or the best pop for living room paint colors can make all the difference in uplifting the mood of any space. And after two rather tumultuous years, more and more design enthusiasts are turning to color to liven up their homes and create spaces of inspiration.
Knowing where to start when finding the right hues for your home is always the hardest part. Luckily, leading design firms and paint brands make it easy to start down the path to a colorful future with their indispensable knowledge on trends in the industry. Many color experts and decorators agree that 2022 is the year for new beginnings, and shades that embody this sense of rejuvenation will skyrocket in popularity this upcoming year.
We're talking earthy tones evoking the natural world, warm neutrals ushering in calmness, and golden yellows brightening every environment. Plus, vivacious green shades along with sultry hues are also predicted to make a bold impact as the year's go-to accent shades. For those color enthusiasts looking for inspiration, here are the six shades and tones that will dominate in 2022.
Leading paint companies Benjamin Moore, PPG, and Sherwin-Williams all agree: 2022 is the year for gray-green. The sophisticated hue symbolizes balance and harmony often seen in the natural world. The hue is subtle enough to be used in many ways throughout the home such as pop of color on the kitchen cabinetry or a colorful welcome in the entry.
Gray-green isn't the only organic hue catching our eyes for the upcoming year. A matter of fact, many designers predict that greens of all undertones and shades will skyrocket to popularity as people yearn to bring a sense of nature into their homes. Expect fabrics featuring emerald or leafy green tones (similar to the one covering the settee in this Cathy Kincaid-designed entry) popping up all over the market in the coming months.
"Earthy neutrals and nature-inspired greens are going to be the go to colors for 2022. Shades of green are on the rise from sage to deeper tones. You can always count on a rich shade of green to evoke the calming, enveloping spirit of the great outdoors. Current Mood, a deep, moody green with cool undertones, has long been a social media favorite — and one of Clare’s best-selling hues. Warmer greens, like Matcha Latte, are perfect for energizing any space with a burst of color that draws from natural greenery. If you’re looking for the perfect balance of boldness and versatility, green is certainly for you." —Nicole Gibbons, Founder of Clare
"Green will be a color to look out for this coming year. A light grey-green, sage green, and an emerald green. Light hues of green are a great color of kitchen cabinetry as they add a bit of color without overpowering. A velvet emerald lounge chair in a living room adds a great pop and allows for conversation. The color green gives a feeling of peace and represents nature. The calming effect of nature is perfect for your home as it should be a place that allows you to relax after a long day." —Susan Spath, Susan Spath Interior Design
In the past, yellow has had a bad reputation for feeling dated and overwhelming. However, sunny shades are making splash in the design scene once again as people look for ways to warm up their home. In particular, buttery and citron tones resembling the petals of a sunflower seamlessly energize any space they are deployed in.
"Look out for nature-inspired hues like earthy olive greens and citron yellows. Think of colors that are grounding and calming but also uplifting and cheerful, for simple, natural and beautiful spaces."—Mindy O'Connor, Melinda Kelson O'Connor Design
“We are loving the mixed use of almost black hues. Instead of always using traditional black, we like to add a twist by utilizing colors such as a deep and dark aubergine. The use of dark hues can be incorporated into interiors anywhere from dark terrazzo floors to dark walls. This monochromatic design element incorporates a sensuous sophistication when blended with neutral furnishings and textiles adding a bold, yet classic aesthetic to any design.” —Jessica Lagrange, Jessica Lagrange Interiors
Here, designer Ceara Donnelley used a rich eggplant shade to give the den's original 18th-century paneling a fresh look. The paneling color is Pelt by Farrow & Ball.
Let it be known that we are obsessed with chartreuse at VERANDA. Electrifying and joyful, the zippy shade is not for the faint of heart, but when it's deployed fearlessly, it's always the star of the show. The green-yellow shade works well in many different applications from upholstery fabric for chairs to lacquered hallways.
Author and art dealer Emily Eerdmans doused the upper salon of her New York gallery in a delicious chartreuse. Gentle details such as tasseled Austrian shades, a portiere hiding the kitchen, and monumental Christmas palms soften the electric walls.
"Warm, neutral paint colors are having a moment as well. Along with bringing warmth and versatility to a space, a neutral paint palette can instantly make a room feel cozy and comforting. Some of my favorite neutrals are Neutral Territory, a sandy beige with subtle red undertones, and On Point, an airy greige that gets brighter in natural light. Consider a rich neutral for a high-traffic area of your home, like your living room, for a versatile shade that will work with a variety of decor styles while creating a more inviting ambience." —Nicole Gibbons, Founder of Clare
SARAH DIMARCOSarah DiMarco is the Assistant Editor at VERANDA, covering all things decor, design, and travel, and she also manages social media for the brand.
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The goal of an appraisal is to provide an estimation of a property’s market value.(GETTY IMAGES)
A home appraisal may not be top of mind when you're looking to buy, sell or refinance a home. But maybe it should be: An appraisal determines for the seller, the buyer and the lender how much a home is worth.
The purpose is to protect the buyer and the lender from paying too much.
A home appraisal isn't the most glamorous part of buying or selling a home, but it's a key step. Learn more about the home appraisal process.
When you have your home appraised, a professional visits the property and inspects both inside and out. However, though both processes involve someone looking around your property, an appraisal has a different objective from a home inspection.
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During an inspection, an inspector examines things like your crawlspace, attic, cabinets, water tank and roof, says Doris Phillips, owner and CEO of title insurance company RealSource and chief operating officer of Lake Homes Realty. "Inspectors also look at everything that is moving and mechanical – they look for safety issues to make sure the house is in sound shape." If anything is found to be damaged or in need of upgrades for safety reasons, the inspector will give you a list of what needs to be addressed.
The goal of an appraisal, on the other hand, is to come up with an estimated market value for a particular property, based on its characteristics and market conditions, according to Matt Harmon, a state-certified property appraiser and strategic real estate advisor at Real Estate Bees. "Appraisers seek to determine the fair market value that a typically motivated buyer would pay for a home."
After a visual inspection, the appraiser creates a report that explains how the value of the home was determined and what that estimated market value is. Though the value is ultimately the opinion of the appraiser, it is meant to be an unbiased, expert assessment.
Appraisals can be coordinated by either the buyer or seller. If you are planning to sell your home, getting an appraisal can help choose an appropriate listing price that will attract qualified buyers.
However, appraisals most typically take place during the mortgage approval process. The lender will order an appraisal to ensure that the home's value is in line with what you're planning to pay for it. Since the property serves as the loan collateral, the lender wants to be sure you aren't overborrowing, which could result in a loss if you aren't able to make your payments.
"If the property is not worth what you are paying for it, then they will not loan you as much as you are going to need," Phillips said. In some cases, your mortgage application may be denied.
Even though it's the lender that requires an appraisal, the borrower is usually the one who pays for it. Generally, home appraisals cost from $200 to $600. The national average cost is $340, according to HomeAdvisor. Factors that affect the cost include the size of the home, its condition, the location, how detailed the report needs to be and more.
Regardless of whether you order a home appraisal as a buyer or seller, Harmon says it's important to have it scheduled as close to the sale date as possible. Market conditions can change dramatically over just a few months.
What Do Appraisers Look for During a Home Appraisal?
Home appraisers are responsible for estimating a property's market value, but how do they go about it, exactly?
Most appraisers use Fannie Mae's Uniform Residential Appraisal Report to evaluate a property's condition, size and layout, as well as any desirable qualities or drawbacks. That can include square footage, number of bedrooms and bathrooms, overall condition, and health and safety issues. "We also observe things about the surrounding area, like the land the home is on, the type of homes in the immediate surrounding area and any negative features like loud roads, power lines, airport noise, etc.," Harmon says.
Once observations are done, the appraiser moves into the analysis portion of the process. "We take all of these factors into consideration and compare the subject property to other homes that have sold recently in the immediate area," Harmon says.
In fact, similar home sales in the area is one of the most important factors in a home's appraisal. Phillips notes that appraisers look for sales that occurred within six to 18 months and within a mile of the subject property, for homes that have similar features such as age, size and amenities. These are referred to as "comps." "(Appraisers) typically want at least three comparable properties to come up with a good median price value of the home," she says.
For example, if homes sold within the last year ranged in price from $250,000 to $280,000, the appraiser would start with this range in mind and then adjust up or down. If the subject property has a bigger yard or a remodeled kitchen, for instance, the appraiser may go with the higher end of that range.
Ultimately, the goal is to determine what sale price a buyer and seller would agree on at that given time. This process usually takes about a week, though timing depends on the time of year and complexity of the report.
How Does a Real Estate Agent Affect a Home Appraisal?
Home appraisers are independent professionals who do their best to come up with an objective property value based on data. That means other interested parties, such as real estate agents, should not have influence over the result.
"There is some separation between agents and appraisers," Phillips says. However, a real estate agent can assist in the appraisal process by providing detailed knowledge of the property. If you're selling your home, your agent will meet with the appraiser to go over recent home improvements and other pertinent details. The agent can also help point the appraiser toward other comps in the surrounding area.
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How Can You Improve Your Home Appraisal?
It's important to get an accurate home appraisal. But it's still best for sellers or owners who want to refinance their mortgage to get as high of an appraisal as possible.
That's not totally in your control, however. "The biggest influence on the value of a home is recent sales data in the immediate market area," Harmon says. "If homes are increasing in sales price, then the subject property will continue to increase in value with no changes to it." Alternately, if recent local sales prices are down, then the value of the subject property will likely go down, too.
That said, there are a few ways you can ensure your property is appraised higher.
Make sure the property is in tiptop shape. The appraiser should be able to see the home's potential. Your decor may not be a factor, but curb appeal and upkeep can influence your home's appraised value. "The most significant way a person can impact the market value of a home is by making improvements to the condition and quality of the home," Harmon says. Fresh paint and carpet, or updated kitchen and bathrooms tend to provide the greatest return on investment.
Prepare a list of recent home improvements. If you have made improvements or added special features to your home, make a list of these upgrades and leave it for your appraiser. For example, you'll want to note if you put on a new roof or siding, or upgraded your furnace, and when. "At times, these additional facts about the home can help the appraisal support a higher value," Harmon says.
Focus on the right upgrades. "Most people think pools, pizza ovens and large yards will make the difference," Phillips says. "It really is updated kitchens and bathrooms." At the same time, don't get too excited if you've spent a lot on repairs and renovations. Your $30,000 kitchen remodel may help the appraisal, but it won't automatically mean that your house is worth an extra $30,000.
Updated on June 1, 2021: This story was originally published on an earlier date and has been updated with new information.
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It's no secret that 2021 has been a hot year for the real estate market. Houses are selling at record prices, bidding wars are frequently taking place for the limited inventory available, and it's not unusual for buyers to pay for home purchases entirely in cash.
Though the market appears to be normalizing somewhat as more listings become available, 2022 is poised to have some unique issues and challenges of its own when it comes to real estate sales. Two factors in particular are likely to impact the market in the year ahead:
The Federal Reserve's decision in November to scale back its pandemic-era economic stimulus efforts.
Foreign investment returning to the U.S. real estate market as American borders open.
Here's a closer look at exactly how these factors will impact real estate over the coming 12 months, and your ability to buy or sell a home.
Feds announce an end to pandemic-era stimulus measures
In early November, the Federal Reserve announced plans to taper off its $120 billion bond-buying program and begin winding down its historic effort to stabilize the U.S. economy amid the rollercoaster ride of COVID-19. The decision comes in response to the significant economic rebound the country has experienced in recent months. As federal stimulus measures end, the central bank will be reducing bond purchases by $15 billion each month through January.
"The Federal Reserve's decision to scale back asset purchases represents an attempt to normalize monetary policy, which shifted into crisis mode as the pandemic tightened its grip on the U.S. economy," says Mark Hamrick, senior economic analyst and Washington bureau chief for Bankrate.
That's all well and good, but what does it mean for you, the homebuyer or seller? The end of asset purchases is viewed by many industry experts as a precursor to rising interest rates. And higher mortgage rates mean home buying becomes less affordable for many Americans.
"The Fed's tapering means that less mortgage bonds and treasury debt will be purchased. As a result, mortgage rates will go up," explains Edward Mermelstein, a real estate consultant and founder of One and Only Holdings, a boutique advisory firm catering to investors. "As mortgage rates go up, homes become more expensive to carry if you are financing the purchase."
Heading into 2022, it's likely mortgage rates will increase anywhere from 0.25 to 0.5 percent, which could make a big difference for some potential homebuyers.
"Currently, mortgage rates are between 2.5 percent to 3 percent, so an increase in 0.25 percent would increase your monthly expense by 20 percent, which is significant. Therefore, it is always best to buy now, instead of six months from now," Mermelstein continues.
Interest rate increases are likely to have the most significant impact on the lower end of the market, where a half point can mean the difference between affordability and unaffordability, says Frederick Warburg Peters, CEO of Warburg Realty.
"In the higher ends of the market, increased interest rates will probably put a damper on price increases, but they're unlikely to significantly impact volume," says Warburg Peters.
It's also worth noting that the predicted rate hike is not exactly ideal at a time when home prices were already sky high. According to a Redfin report released in November (which covered the four-week period ending November 14), median home-sale prices had increased 13 percent year over year to $357,881 by last month. They were up 30 percent from the same period in 2019. In addition, asking prices of newly listed homes for the time period covered in the report were up 13 percent from the same time a year ago, and 27 percent from 2019, to a median of $354,725.
"Higher rates will hurt just that much more as real estate prices have climbed by 20 percent or more in the past year," says Melissa Cohn, regional vice president and executive mortgage banker for William Raveis Mortgage. "The combination will be hard on the real estate market. People will still be able to buy—but they will be able to afford less space."
Foreign investment returns in 2022
Because the nation's borders were largely closed during much of the pandemic, the housing market was essentially protected from an even bigger run-up in purchase prices that might have been driven by foreign investors dabbling in the market. This reality is poised to shift quickly in the opposite direction as American borders reopen.
Foreign investors have been waiting for almost two years to get back into the U.S. markets, say experts. As flights are added and foreign visa bottlenecks subside, there will be an acceleration of money from abroad flowing into U.S. real estate. It's a development that will benefit some, but not everyone.
"Major markets, such as New York, Miami and Los Angeles, should benefit well from the return of foreign investors. Specifically, sellers in these cities benefit the most because as foreign investors enter the markets, prices increase," adds Mermelstein.
If you're a prospective buyer, however, this run-up may not be ideal, especially when combined with the increased interest rates on the horizon.
"Between increasing mortgage rates and the return of foreign investors, the cost of housing will most certainly get more expensive," says Mermelstein.
Still, not all real estate experts are convinced there are such significant changes ahead, at least not with regard to foreign investors flooding the market come 2022—especially now that a new strain of coronavirus is threatening any return to normalcy.
"With the advent of the Omicron strain of COVID, I think a lot of bets are up in the air, if not off," says Ellen Sykes, a broker for Warburg Realty. "It's unlikely most people anticipated the renewed waves of possible quarantines, shutdowns, and the impact on travel. Consequently, I do not see as great an influx of foreign investors as we used to expect in New York City, and elsewhere in the country. There will always be the larger consortiums and big players coming and going, but the individual investors will be laying low for a while. It is just too difficult at this point."
Takeaways for homebuyers
The experts at Opendoor continue to predict that the spring 2022 homebuying season will see high demand across the United States despite any potential market changes looming. Even with increased interest rates and the possibility of more buying competition from foreign investors, there will still be plenty of options for buyers and sellers alike and the market will continue to move quickly.
"While we don't know what the interest rates will look like, we always recommend to customers that they have a firm understanding of their finances to determine their individual needs," says Nadia Aziz, Opendoor's general manager for mortgages. "Researching options is important in order to find the best financing product that meets your needs. There are many different mortgage products available, including low down payment options, that may help home buyers achieve their dream of home ownership."
A perfect storm. That's the best way to describe the red-hot housing market we've seen from coast-to-coast during the pandemic. It was spurred by a combination of recession-induced low mortgage rates, remote work allowing buyers to sprawl further away from their workplace, and a demographic wave of first-time millennial homebuyers entering into the market. Of course, years of under-building means there simply aren't enough homes available to meet this demand. Cue record price growth.
But how much longer will this run last? After all, home price appreciation of 19.9%—a 12-month record set between Aug. 2020 and Aug. 2021—can't be sustained forever.
Already, there are signs the housing boom is losing some steam. We're seeing seasonality—a cooling period that happens like clockwork most years—return to the market after it was absent during the holiday and vacation stretch last year. That's not all: More homebuyers are finally beginning to push back against surging prices. Indeed, in October 60.3% of sales involved a bidding war, which is down from the all-time high in April (74.5%). There's also the increased likelihood the Federal Reserve will raise rates to tamp down inflation. Rising mortgage rates would price out some buyers altogether.
What does this mean for home price growth in 2022? To find out, Fortune reviewed seven industry forecast models. But buyers and sellers alike won't get much peace of mind from these forecasts: The economic models don't produce anything close to a consensus. Some of these forecast models predict price growth next year will go down as one of the highest on record. Others are forecasting a rate of appreciation that would be the slowest in more than a decade.
“The supply-demand picture that has been the basis for our call for a multiyear boom in home prices remains intact...Of all the shortages afflicting the U.S. economy, the housing shortage might last the longest," wrote Goldman Sachs in its 2022 outlook.
What's going on? Well, neither Zillow nor Goldman Sachs foresees the demographic wave of first-time millennial homebuyers letting up. We’re in the midst of the five-year period (between 2019 and 2023) in which the five largest millennial birth years (between 1989 and 1993) are hitting the all-important first-time home buying age of 30. According to their forecasts, there won't be enough homes to satisfy all of that demand next year.
Since 1980, Fortune calculates home prices on average have climbed 4.6% per year. Over the past year, price growth (19.9%) is four times that level.
The good news for would-be home buyers? Among the seven forecast modelsFortuneexamined, four predict we'll see price growth in 2022 fall back closer to the historical average. That includesFannie MaeandFreddie Mac, which are predicting U.S. home price growth of 7.9% and 7%. That's slightly higher than the historical norm, however, it's hardly the eye-popping numbers we've seen during the pandemic. Meanwhile, models released byRedfinandCoreLogic foresee 12-month price growth falling to 3% and 1.9%, respectively.
What do the models predicting substantial price deceleration have in common? They foresee price growth getting chopped down by rising mortgage rates. As of Monday, the average 30-year fixed mortgage rate stands at just 3.1%. By the end of 2022, Fannie Mae projects it'll hit 3.4% while Redfin's model says 3.6%. Those jumps are bigger than they might appear at first glance. Let's say a borrower took on a $500,000 mortgage. At a 3.1% mortgage rate, they'd see a $2,135 monthly payment (not factoring in any taxes or insurance). But if that rate were the 3.6% as projected by Redfin, that payment would rise to $2,273—or nearly an additional $50,000 over the course of the 30-year mortgage.
Another unknown: Will corporate America begin pushing harder next year to bring staffers back into the office? If the workplace is less WFH friendly next year, that could translate into fewer buyers in both second home markets (like the Hamptons) and in the exurbs. That concern is shared by Frank Martell, CEO of CoreLogic, who wrote in the real estate data firm's latest forecast that "as we head into 2022, we expect some moderation in the current pattern of flight away from urban cores as the pandemic wanes.”
But there is one outlook that is relatively bearish on price growth.
The Mortgage Bankers Association, an industry trade group, is predicting that the median price of existing homes will decrease by 2.5% between the fourth quarter of 2021 and the fourth quarter of 2022. When you look closely at its model, it's easy to see why: The Mortgage Bankers Association is forecasting that the average 30-year fixed mortgage rate will hit 4% by the end of 2022. Over the course of 30 years, that'd add an additional $90,000 in cost to a $500,000 fixed rate mortgage
That said, even if the Mortgage Bankers Association's price drop comes to fruition,it'd hardly be a housing crash. In fact, in that scenario, U.S. home prices would still be up over 20% from pre-pandemic levels.
If you sold your house before you've found new digs, don't worry: You have options.
March 26, 2021
In an ideal world, selling your old home and purchasing your new one would be perfectly coordinated: you sign two stacks of papers, trade one set of keys for another and voila! Unfortunately, that kind of harmonizing doesn't always happen. With both transactions pending, your future home's seller and your existing home's buyer could be trying to synchronize their own home deals. In a common enough scenario, one of your transactions is finishing before the other has even started. In this article, we will look at what to do if your home sells before you have found another, and how one popular solution to this problem can be beneficial to your buyer too.
The Seller's Perspective
If you cannot coordinate buying and selling perfectly, this is arguably the better position to be in. Buying a house before selling can make you responsible for two mortgages and two homes, sometimes in different cities. Since your sale is now complete, you know exactly what you have in the bank for house-shopping and have your down payment money ready. Plus, you are an attractive purchaser since you won't need to make your home sale a contingency in the contract.
The obvious downside to selling first is that now you need to figure out where you're going to temporarily lay your head. Based on your personal situation and the outlook for your next residence, you have a few options:
Friends and Family If it looks like it will be a matter of a short delay, you could stay with family or friends. This option is more tenable for a single person or a couple than folks with a large family or those with young children. The advantage of shacking up with loved ones is that it may be free — a big plus. The downsides are significant, however. You will need to rent a storage unit for your stuff, and you'll incur double the time and expense of moving everything. Plus, the situation could strain your relationship if it goes on too long.
A Housesitting Gig You could try a housesitting arrangement. Aside from your extended circle of friends, several companies online pair homeowners on sabbatical or extended work assignments with reliable home (and sometimes pet) sitters. Often it is a free arrangement, and sometimes it's even paid. That would more than make up for your storage costs. The downside to housesitting is that finding a position can take time and, depending on where you are looking, be highly competitive. If you have left the problem of where to live until the last minute or are limited in your locality, this one won't fly. It is also not an option for a family or individuals with their own pets. And you still have the moving time and expense times two.
The Short-Term Rental Another idea is to simply rent an apartment month-to-month or on a short-term lease. This option allows you to relax and shop for your next home at your leisure without worrying about how long it might take. The financial part could be a win or loss because rent may be more or less your next mortgage payment. The definite downside is having to move twice.
The Leaseback Agreement The best option for the home seller in this situation is often the leaseback (also known as a sale-leaseback, rent-back orpost-closing possession agreement), in which you close the home sale like usual and then become the purchaser's temporary tenant for a period after closing. Your rent covers the cost of his or her mortgage payment. This scenario requires a purchaser with flexibility, but it is a common enough practice: it actually happens in about a quarter of home purchases in some markets. The great thing about the leaseback for you is obvious – you can shop for your new residence from the comfort of your former home. No shacking up with in-laws; no storage facility bills; no double moving charges.
The Buyer's Perspective
The leaseback can be of benefit to the buyer too. If the buyer is in the opposite scenario — buying before selling — a leaseback would be of serious financial benefit. Remember, carrying two mortgages is not so fun. Or, if the house was purchased as an investment property, the buyer has a built-in first tenant.
There are pre-contract buyer benefits as well. If it's a seller's market and the buyer is struggling to secure a home purchase, the seller may be too. Being amenable to a leaseback can put the buyer ahead of others competing for the home. If the buyer needs to close quickly in order to secure a low-interest rate, the leaseback offer is their carrot in negotiations. In another scenario, in which a buyer locates an off-market property or a for-sale property with a tentative homeowner, it can incentivize the homeowner to pull the trigger by slowing the transition out of the house to a comfortable pace.
These 10 packing tips will help you move more efficiently and smoothly.
Doing a Leaseback Right
There are downsides to a leaseback agreement that can be avoided with cautious planning. First, not everyone is a good candidate for the arrangement. There should be a high likelihood of the seller/tenant acquiring a new residence in short order, meaning (among other things) he or she should be in a secure financial space. On the other side, the buyer/landlord should not risk jeopardizing his or her own living situation or home sale to accommodate the seller. So, those we mentioned before — an investor or someone whose old home is sitting on the market — would be good participants, as would a first-time buyer who can conveniently extend his or her current accommodation for a while longer.
Even with suitable parties, the leaseback requires careful crafting to protect everyone, particularly the buyer-cum-landlord, who carries most of the risk. The buyer should ensure at the outset that tenancy does not fall afoul of the terms of his or her mortgage agreement. And it doesn't hurt to check the local eviction laws for what the buyer/landlord's rights are in a worst-case-scenario where the seller/tenant refuses to leave. Then, an experienced real estate agent or broker should write the agreement. The leaseback needs to outline the financial obligations of the seller/tenant regarding rent and security deposit and have a fixed term with a daily fee for remaining beyond that period. It should also cover such matters as insurance coverage, whether pets are allowed, and responsibility for utilities, maintenance and repairs.
So much of the home-selling and home-buying experience is out of one's control — with the other party and participants (lenders, inspectors, appraisers) injecting a huge degree of uncertainty into the transaction. Thus, home sales and purchases are near the top of the list of stressful life experiences. The leaseback is one way buyers and sellers can work together to complete the deal to their mutual satisfaction while making the process a little easier.
Elon Musk has found a buyer for his last remaining residential property, a historic California estate listed for nearly $32 million.
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Tech titan and space entrepreneur Elon Musk has found a buyer for his last remaining residential property, a historic California estate listed for nearly $32 million.
The 16,000-square-foot mansion in Hillsborough, California—an affluent area in Silicon Valley—went into contract over the weekend for an unknown amount, according to the Multiple Listing Service. No public information about the price or the buyer was available, as the sale has yet to close.
Mr. Musk, 50, first announced he was selling the European-style residence in a June tweet saying he’d “decided to sell my last remaining house. Just needs to go to a large family who will live there.” He listed it shortly after that for $37.5 million.
Also known as Guignécourt, the home sits on 47 acres—one of the largest parcels in the area—with views of the San Francisco Bay and city skyline. It was built in 1912 by a French nobleman, Count Christian de Guigné, who came to California and married Mary Katherine Parrott. De Guigné later started Stauffer Chemical Company and Leslie Salt, which distributed the mineral around the Bay Area.
The residence boasts seven bedrooms and nine and a half bathrooms, according to the listing. It features a grand living room, a library with leather walls and a fireplace, a gourmet kitchen with an area for a personal chef and dining and music rooms that can be combined into one large entertaining area.
No surprise, there have been quite a few technology updates to the 100-year-old home.
“Upgrades to infrastructure include fiber optic cable under the driveway, high end security system, interior sound system and restoration to several of-the-era features,” the Gullixsons said in the listing. The agents declined to comment on the deal.
The landscaped grounds boast a reservoir, a pool and pavilion, hiking trails, a three-car garage and an eight-car carport.
Mr. Musk bought Guignécourt in 2017 for $23.4 million through Gatsby LLC, which is connected to another entity, Excession, tied to Mr. Musk’s family office. The property was once listed for $100 million before he purchased it, Mansion Global reported.
He has been selling off his real estate in recent years in an effort to to focus on a “multiplanetary” life. Representatives for Mr. Musk did not immediately return a request for comment.
There’s never been a housing market quite like this before.
Today’s real estate agents are pulling double duty as therapists, consoling heartbroken homebuyers who lost out on their fifth—or 15th—home. First-time homebuyers around the country are being outbid by investors—some of whom are willing to pay more than $100,000 over asking price. Wealthy buyers offering all cash for second homes are sending prices ever higher, pushing the dream of homeownership out of reach for many folks.
Meanwhile home sellers are enjoying the benefits of life in the fast lane: the ultimate seller’s market. Can all this last? Is this really going to become the new normaWell, no. In this pandemic-fueled era, it’s easy to forget that the extremes of today’s real estate market—like, say, having to put in an offer well over asking price and agreeing to waive all contingencies, before an open house is even over—are simply not normal. That’s why the data team at Realtor.com® wanted to look at what a typical, classically healthy housing market looks like, back when homes sold for a few percentage points less than what the sellers were asking.
While the market has, in fact, begun to cool off just a little, it’s still a highly challenging time to be looking to buy given the severe housing shortage. Even before COVID-19 turbocharged the demand for housing, buyers were struggling with rising prices and a severe lack of properties for sale.
“The pandemic certainly made things significantly worse, but the lack of inventory has been a long-standing challenge in the housing market,” says Ali Wolf, chief economist at building consultancy Zonda.
So when is this blink-and-you-miss-it real estate market going to get back to normal—and what needs to happen to get there? We pored over the data and talked to the experts to find out.
Home prices have been rising at a breakneck pace, and buyers are having a hard time keeping up.
Median list prices shot up by more than 13% so far this year, according to Realtor.com data. In some cities (see: Austin, TX), prices have spiked by about 30%. But higher prices were a problem even before the pandemic.
In a perfect real estate world, home prices would need to rise at the same pace as people’s wages in order for regular folks to become homeowners. Yet over the past decade, Americans’ average wages have increased by about 2% to 3% each year, according to the U.S. Labor Department. But home prices have risen at a rate of about 7% each year over the same time.
Since COVID-19 upended the world in March 2020, prices have risen 13.5% through August, according to Realtor.com listing data.
Last month was the first time since July 2020 the annual growth rate dipped below double digits. By the end of the year, Realtor.com economists project home price growth may calm down a bit—but not enough to have buyers cheering. Prices aren’t expected to fall nationally and, at the end of the day, slow growth is still growth.
“Slower growth isn’t going to quickly make homebuying affordable for those who have been priced out recently,” says Nancy Vanden Houten, the lead economist at Oxford Economics, a forecasting company. “It’s hard to imagine a precipitous drop like we saw 10, 12 years ago.”
National median home prices have ballooned from about $260,000 in 2016 to more than $380,000 today, according to Realtor.com listing data. That’s a huge difference for the average homebuyer, and rising prices are hurting many buyers’ bottom lines. With fewer homes available and high demand for those that remained, many sellers began seeing multiple offers that, in turn, drove up prices.
That’s great for sellers, but buyers needed to find ways to stand out, and that often means by offering more money, creating rapid price growth over the past year or so. And of course, many sellers are also buyers themselves, on the prowl for their next properties. People who want to sell their homes can’t find a home to move into—a vicious circle where people want to move, but can’t because of the lack of inventory.
“Home prices have grown notably this year, and that’s making homes less affordable,” says Danielle Hale, Realtor.com chief economist. At some point, prices won’t be able to continue rising by so much, because there won’t be enough buyers who can afford to become homeowners.
“It’s not a problem yet because mortgage rates have been so low, but we’re approaching a point where lack of affordability could cause home price growth to slow,” adds Hale. “That’s especially true if mortgage rates also start to rise.”
Even though home prices are high, mortgage interest rates have hit all-time lows. That’s helping to offset the higher prices because lower rates translate into lower monthly housing payments. And right now, every dollar counts!
Just a quarter-point of interest rate movement can make a big difference in how much homeowners are shelling out. At the end of last week, average mortgage rates were 2.86% for 30-year fixed loans, according to the most recent Freddie Mac data. Before COVID-19, interest rates had never dropped below 3%, a move the Fed made to spur market growth in a shut-down economy.
To put that in perspective, a more typical “normal rate” in a healthy market would probably be closer to 4%, says Len Kiefer, deputy chief economist at Freddie Mac.
“If you’re purchasing a home using a mortgage and you’re looking at [rates of] 4% versus 2.88%, that would save you close to over $2,000 over the full year,” Kiefer says. That adds up to about $60,000 over the life of a 30-year loan.
Overall, mortgage rates have been steadily dropping since the 1980s, when the Federal Reserve hiked interest rates to combat inflation. They hit a now-remarkable high of 18.63% in the week ending Oct. 4, 1981, according to Freddie Mac data.
Most economists expect rates to start moving higher over the next 10 years. That could keep prices in check as most buyers have a limit on how much they can spend each month on housing. In the short term, Freddie Mac projects rates will go back to 3% by the end of this year. Barring any economic disasters, Kiefer says, rates probably won’t start moving closer to 4% until 2023 or beyond.
The lack of homes for sale is the main culprit behind the previously unthinkable high prices. Even though more homes have been listed in recent months, there are still about half as many homes for sale as there were at the start of 2020, according to Realtor.com.
Normally, the number of homes available rises and falls with the seasons. In a typical market, sellers begin listing their homes in the early spring, and buyers wind down in the fall ahead of the back-to-school season. But last year, the number of homes on the market began a steady and steep drop.
Even before the coronavirus upended the world, the nation already had an inventory problem. Homes were getting too old, battered by natural disasters and everyday wear and tear, and being bought up by investors, many of them turned into rentals. And builders of new homes weren’t making up the difference.
“We were already contending with a pretty prolonged and acute shortage of homes for sale,” says economist Vanden Houten. “The demand that arose as a result of the pandemic took many of us by surprise.”
A need for more space due to work-from-home orders sent city dwellers farther out of big cities, others sought out second homes, and desperate buyers rushed the market to find larger abodes. Even though more people are expected to list their homes over the next year, the market is so out of whack, that the total number of homes for sale will remain low.
“We’ve had good gains in housing construction, but we’ve still accumulated a pretty big shortage,” Vanden Houten says.
Despite the severe housing shortage gripping the nation, builders haven’t been able to ramp up construction enough to make a dent in the problem. Instead, homebuilding actually slowed in July, according to the latest U.S. Census data.
Skyrocketing lumber and materials prices sent building costs soaring at the start of the pandemic. While prices have cooled since peaking in May, those savings aren’t yet being passed on to consumers. Land and labor shortages have also continued to drive up prices. And strict zoning restrictions limit where certain types of homes can be built.
Rising costs have started to put off buyers, and that has caused homebuilders to hit a ceiling, at least temporarily.
“Builders in some cases were throttling demand, or having a quota on sales to manage and maintain their production pipelines,” says Robert Dietz, chief economist of the National Association of Home Builders. That means even though people wanted the homes, builders couldn’t keep up with the demand without significantly upping their prices.
After a massive plunge in construction during the Great Recession, homebuilders have yet to make up for the lost time as many of them went out of business after the bust and never returned. Dietz estimates the current housing deficit stands at about a million housing units. To get back to normal, he says, builders would need to put up about 1.4 million single-family homes a year.
That “would require hundreds of thousands of additional construction workers,” Dietz says. “While it’s been done in the past, it’s hard to imagine adding workers so quickly.”
Not only are buyers dealing with prices at all-time highs and insane competition, they also don’t have much time to make up their mind. In some cases, they don’t even have the opportunity to sleep on it before making what could be the biggest purchase of their lives.
Depending on the season, the typical home usually spends between 55 and 80 days on listing sites, according to Realtor.com data. However, it was just 39 days in August. Homes are now selling in roughly two-thirds the time they sold last year, and less than half the time they did four years ago.
The fact that homes are selling so quickly is making the inventory shortage seem even worse.
“With homes turning over so quickly, you’re going to see fewer [active listings] because they’re just not sitting active for very long,” says economist Hale.
Homes are still being snapped up quickly, but they lasted slightly longer on the market in August compared with the month before. Still, things aren’t going to go back to normal overnight. To fix it, housing experts say there is really only one solution: time.
“We have to realize that the market is a bit broken,” Zonda’s Wolf says. “Time will help get more inventory to the market. But [that] doesn’t mean a year. This means over the next three to five years we’re going to see things get back to normal.”
Elena Cox is a data journalist for Realtor.com. She has a master's degree in data journalism from Columbia University's Graduate School of Journalism. She previously worked for CBS News, Bloomberg TV, and NY1.
Watertown, Massachusetts, has long been a popular place to live due to its proximity to Boston and its distinction as having a very large Target. Thanks to remote work, locals say the city is now becoming more attractive in its own right.
More people spending more of their time in Watertown has meant more urban amenities, like trendy stores, coffee shops, and even a potential food co-op, for the once sleepy suburban community.
Developers are buying upreal estate in the hope that it will become a destination for the life science and innovation sectors. A once defunct mall is currently being converted into mixed-use space full of retail, residences, and restaurants that act more like a downtown than Watertown’s actual downtown. The Arsenal Yards project began before the start of the pandemic, but much of the leasing has happened after it. Already, 76 percent of its apartment space and 85 percent of its retail space have been leased. And its developers expect full occupancy next year.
Watertown is one of many American suburbs undergoing a similar transition as a consequence of the pandemic.
In the spring of 2020, many of the typical draws to cities — plays, nightclubs, restaurants — shut down. Space took on a premium, as small apartments close to others felt particularly claustrophobic. All of a sudden, a big home in the suburbs for the same monthly price as a tiny apartment in the city got a whole lot more attractive. The lifestyle also seemed safer, as you could travel in the isolation of your own vehicle and play in personal green spaces with less fear of infection. More companies than ever are allowing employees to work from home, and studies say that between 13 and 45 percent of the workforce is now remote some or all of the time.
As a result, a new rush to the suburbs is well underway. The number of net new households that moved to the suburbs grew 43 percent last year, according to data from the Wall Street Journal, compared to 2019. While that naturally slowed in the first half of 2021, urban areas are still losing people as they relocate to suburban and rural areas.
People who left their city apartments for houses in the suburbs aren’t just living in the suburbs, they’re working there now, too. In turn, the people and services these workers may have relied on in city centers are moving to the suburbs as well. All of this will affect which businesses thrive and what real estate develops in the suburbs. It could also change traffic patterns, exacerbate urban sprawl, and heighten inequality.
New suburban businesses and improved real estate trends could lead to revitalized communities, less travel, and better quality of living for some. But not everyone will benefit. Sprawl is bad for the environment and can make life worse for the poorest Americans.
The urbanization of the suburbs
People might be leaving behind the cities, but that doesn’t mean they want to forgo the city lifestyle. Even in the suburbs, people still want to be able to grab a quick coffee and a sandwich, and maybe a midday workout, and they don’t always want to do that at home. That demand has huge repercussions for commerce and construction. Research from Stanford’s Arjun Ramani and Nicholas Bloom estimates that the largest cities have lost approximately 15 percent of their population and business to the suburbs.
Of course moving to the suburbs isn’t new: People young and old have long left the bustle and tight quarters of cities for the relative serenity and expanse of the suburbs. The postwar period created the suburbs as we know them, with many families accepting commutes in exchange for big houses outside urban hubs. In recent decades, that trend reversed. As newer generations glommed on to the entertainment, energy, and easy public transit of cities, population growth in many cities again outpaced suburbs beginning a decade ago.
But now suburbs are swelling again. Even before 2020, the suburbs had been urbanizing for years, as suburban dwellers sought the ease and efficiency of mixed-use areas that centered homes among commerce. But the increased prevalence of remote work has supercharged that progression by making it more viable.
This influx of people from cities to the suburbs will in some ways make the suburbs a lot more like the city, with more businesses located within walking distance of where people live. Achieving something that resembles urban density in the suburbs requires repurposing existing real estate to support a wider variety of businesses and functions, according to June Williamson, a professor of architecture and urban design at the City College of New York and co-author of Case Studies in Retrofitting Suburbia.
“The model is to reuse spaces, so instead of one entity, it’s lots of smaller businesses,” Williamson said. “There might be a food court, farmers market, hairdresser, preschool, lots of events, maybe a micro hotel — basically an ersatz downtown.”
Shifts in where people are spending their time are transforming how all kinds businesses in the suburbs work, too. Previously, suburban businesses were beholden to the daily commute — catering to people headed out to the city in the morning, emptying out during the day, and picking back up only after people returned home for the evening. A suburban restaurant near a transit hub, for example, might only get enough business to support a breakfast and dinner service, so wouldn’t be profitable midday.
“[Suburbs] used to be incredibly dead because there were just large stretches of time when no one was there,” Arpit Gupta, an assistant professor of finance at NYU’s business school, said. Having people live and work in one area means there is a more regular flow of people throughout the day, which is better for sustaining a wider variety of businesses.
“In the long run, I think it will make the suburbs more vibrant,” Gupta said.
A number of examples of repurposing bygone suburban real estate for mixed-use are also popping up around the country. While some of these projects were initiated before the pandemic, the influx of people to these areas since the pandemic began is making the fate of these developments more secure. The Arsenal Yards development mentioned earlier books itself as an “urban village set right in the heart of Watertown’s historic East End.”
In Austin, Texas, another defunct shopping center, the Highland Mall, is being converted into a community college campus, office space, housing, and stores in addition to parks and trails. During the pandemic, Bell Works, a “destination for business and culture” that already had a location at the former Bell Labs headquarters in Holmdel, New Jersey, opened a second office, dining, and fitness space in another former AT&T campus in the Chicago suburbs. It bills itself as a “little metropolis in suburbia.”
Office real estate is also changing in the suburbs and mimicking the city coworking trend of the last decade. Prices for suburban office real estate haven’t declined nearly as much as downtowns, according to data from real estate firm CBRE. Working from the suburbs doesn’t necessarily mean working from home. For those whose homes aren’t suitable for work or who need space to meet or collaborate, or who just enjoy going into an office, a cottage industry of suburban office options is popping up.
“My competitor is right now your home and maybe Starbucks,” said Joel Steinhaus, a former executive at the coworking space pioneer WeWork and cofounder of Daybase, a coworking company that plans to open spaces in former suburban retail stores like Pier 1 Imports and Victoria’s Secret. WeWork and its model for flexible office space rose to prominence in the early 2010s, when city centers were thriving and companies were experimenting with new approaches to real estate. WeWork nearly went under just before the pandemic.
In some cases, suburban coworking may be more popular than in cities, according to new data from LiquidSpace, a marketplace for coworking space. Sacramento, a popular decampment for people moving from the high prices of the Bay Area, currently has more bookings on the site than San Francisco.
Housing in the suburbs is changing, too. It’s getting more expensive. Due to high demand and limited supply, housing prices in the suburbs and exurbs have skyrocketed, while prices in major city centers have stagnated. For example, central Boston saw its home value grow 9 percent in the last two years, while prices for places within commuting distance of the city like Worcester and Providence grew about 30 percent, according to data from Zillow and HERE Technologies.
The difference is even more apparent in New York City — a city with a high concentration of remote workers — where the median home price in urban areas of Manhattan, Brooklyn, and Queens actually declined while prices for homes 90 minutes away went up about 25 percent in the past two years.
“Small, expensive homes close to the office that previously benefited from a short commute as well as proximity to urban amenities — those homes saw a lot of their appeal decline,” Jeff Tucker, senior economist at Zillow, said. That’s because many of the city amenities were curtailed during the pandemic. Meanwhile, the home office became the new office.
“The relative value of space definitely went up,” he said.
While some question how long-lasting the move to the suburbs will be, the fact that people are buying so many homes makes it a difficult trend to unwind.
“I do not foresee a circumstance where a bunch of people who bought homes, even if they’re relatively further out, are going to just en masse turn around,” Zillow’s Tucker said. “The vast majority are going to build their lives out there.”
The rush to the suburbs will also affect what houses will look like. Instead of homogenous developments of large detached homes on half-acres of land, Tucker said, new construction includes more varied housing types to meet a broader range of consumer demand. That means construction of townhouses and apartment buildings in addition to the single-family homes of yore. Like the mixed-use retrofits mentioned earlier, these developments will be near or even include businesses within them.
Old problems showing up in familiar places
While the move to the suburbs will certainly benefit individuals, it threatens to exacerbate problems that have always plagued the suburbs — transit, sprawl, inequality — unless we do something different this time.
When people talk about the benefits of remote work, skipping their commute — and its logistical and environmental challenges — is often the first thing they mention. However, the jury is out on whether remote work will actually lead to less driving.
Whether or not remote work leads to a net decrease in miles driven will depend on two main factors, according to Adie Tomer, senior fellow at the Brookings Institution: how many days a week people go into the office and how far from cities they move. We don’t really know the full extent of either yet. Most office companies have said they will operate under the so-called hybrid model, which means employees can split work between home and the office, but many haven’t hashed out the details yet or those details are still in flux. What we do know is that the majority of travel happens outside of commutes, and when people live in more suburban areas, their average trips to things like grocery stores or restaurants or day care are longer.
So far, while overall vehicle miles traveled in the US is down slightly from pre-pandemic, it varies widely by area. Traffic in city centers is below normal, but it has recovered in the suburbs and is in some cases heavier than before, according to data from StreetLight Data, which studies traffic patterns through cellphone data. Things could get worse as more people head into the office again, leading to more time spent in cars and more greenhouse gas emissions.
Another related issue to consider is how increased remote work could negatively affect mass transit. Fewer people taking mass transit into cities threatens the overall viability of those transit systems going forward. Many suburbs already lack good public transit, which makes it difficult for those with lower incomes — or without cars — to be able to get around, inhibiting their access to jobs and even basic necessities.
“Urban sprawl makes providing a robust public transit system very difficult,” Christina Stacy, a principal research associate at the Urban Institute, said.
Rising housing prices in the suburbs are making matters worse. New housing in the suburbs tends to happen at the outskirts, where land is available and less expensive, another factor that contributes to sprawl.
While some places like Minneapolis and, more recently, the state of California are embracing suburban densification by allowing more than one house to be built on a property, that’s by no means the norm and depends on the policies of a given municipality.
Residents in so-called “high-opportunity neighborhoods,” predominantly white areas with low poverty and unemployment as well as ample job opportunities, can be reluctant to embrace these changes.
“In a lot of high-opportunity neighborhoods, homeowners don’t want that increased density. They don’t want increased population. They worry about traffic and congestion and their house prices going down and schools being overcrowded,” Stacy said. That’s an impediment to changing zoning laws to allow more dense and mixed-use building.
If such changes don’t happen and prices continue to rise in the suburbs, poorer residents could get forced out of what’s becoming a more vibrant place to be.
“We need to be careful and make sure we’re preserving and developing affordable housing to allow households to remain in place,” Stacy said. “It’s important for the economy as a whole,” she said, noting that in order to have more amenities, you need people to staff those amenities as well. Mismatches between where lower-income people live and where jobs are located lead to higher unemployment rates and longer periods of joblessness. To combat these problems, suburbs will need better transit and more affordable housing near commerce centers.
While today’s suburbs are getting a facelift — younger people, more urban amenities, a more consistent revenue stream from remote workers — many of the problems that have plagued previous iterations of the suburbs persist. In many ways, the suburbs are more vibrant than ever. But to keep them that way, we need to avoid the pitfalls of the past.
Correction, October 24, 10:30 am: A previous version of this story said that Highland Mall is in the suburbs, but it is within Austin city limits.