Constance Mitchell Ford
What’s next for the real estate market? We asked the chief economist at the National Association of Realtors
So you want to buy a vacation home, but you’re waiting for the market frenzy to calm down long enough to allow prices to cool off and contract negotiations — which are overly favorable to sellers at the expense of buyers — to return to normal? You’re not alone. Lots of potential vacation-home buyers are on the fence, betting that the market will improve for buyers this fall as companies order workers back to the office while either reducing or completely eliminating remote work. That, in turn, would reduce demand for second homes, especially in the most desirable locations.
While that seemed like sound reasoning a few months ago, conditions have changed — yet again. The fast spread of the Delta variant of Covid-19 has prompted some companies to hold off on bringing workers back.
So now what? The Escape Home asked Lawrence Yun, chief economist at the National Association of Realtors, to weigh in. In brief, his view is somewhat mixed. He believes the market will indeed cool, but perhaps not enough to bring prices down. But he has some decidedly good news for people who already own vacation homes: rental prices for vacation homes will continue to rise. Here’s more from our Q&A with Yun:
EH: Earlier this summer, it seemed that the Covid-19 pandemic was getting under control and many companies expected to call workers back to the office. But now those plans could be on hold due to growing concerns about the Delta variant. How has this altered your forecast?
LY: One near certain aspect of the post-pandemic economy, when it comes, is the flexible work schedule, which is here to stay. It is very hard to envision five days a week in the office. Therefore, vacation home sales will continue to move higher, this year, next year and for the foreseeable future.
EH: What will it take for this market to finally cool down?
LY: The home sales market is already cooling as some first-time buyers are squeezed out due to very high home prices. Home sales will further decline in 2022 as the Federal Reserve becomes less accommodative, which could send mortgage rates higher ( making it more expensive to buy.) Home sales in the first half have been solid, so the annual sales in 2021 will be higher and the best since 2006. But sales will be lower by 3% to 5% in 2022. Home prices are unlikely to decline, though future gains will be moderate.
EH: Are you seeing any regional differences in market activity?
LY: The Midwest market is seeing better home sales than most other markets because it is the most affordable region.
EH: Is there any advice you can offer potential buyers?
LY: Real estate has turned out to be a great investment with good financial returns. The gains will continue, but they will be more moderate in the upcoming months and years. Rents will soar as job recovery leads to increased rental demand as home buying is becoming more difficult.