Existing home sales spiked by a record 20.7 percent in June, while rising prices cheer sellers, worry buyers — and frustrate renters whose ability to save for a down payment is crimped by rising rents.
New homeowner Lina Andersen purchased the Oakland, California, house she and her husband had been renting when the owner told them earlier in the year he planned to sell it. “Being priced out never really dawned on me,” she said. “But the rental market in that pocket of Oakland had just been booming.”
Andersen, who works in public education, and her husband, a merchant marine, worried that they would be forced to move for the second time in three years as property owners cashed out in a rising market. Displaced in 2018, they found their current home, but the rent was $1,100 higher — a prospect that made saving up for a down payment even harder. “Our rent was $3,800,” she said. “We had been saving as much as we can, but 20 percent on a lot of money is still a lot of money.”
The home, which the couple was able to purchase with financial help from family, needed a bit of work and didn’t have the scenic view its neighbors enjoyed, but Andersen viewed that as a small trade-off to be able to stay in the area and not have to uproot her two boys, aged eight and five. “As a parent, it was really emotional not having to tell them we have to move again because we can't afford to stay,” she said.
The Andersens’ agent, Kumi Hodge, said he sees high demand, tight supply and rock-bottom interest rates propelling prices higher. “I’ve noticed more calls about folks wanting to get out of their small apartment and getting a place with a yard,” he said.
Hodge, an Oakland native, said this shift makes it challenging for people to stay in the neighborhoods where they grew up. “I can’t afford any homes that I would live in in my own neighborhood. I’m making a solid income and I still can't access the homes that are local to me.”
Nationwide, the median home price in June rose to $295,300, driven by low inventory — a factor influencing the market even before the pandemic — and pent-up demand, said Lawrence Yun, chief economist for the National Association of Realtors. “Home prices rose during the lockdown and could rise even further due to heavy buyer competition and a significant shortage of supply,” he said.
“Many households have continued to work through the pandemic and maintained their purchasing power. It's really those households that are doing well that are fueling this demand,” said Chris Herbert, managing director of the Harvard Joint Center for Housing Studies. “This pandemic has tilted the scales towards suburbs.”
This dynamic can mean a windfall for sellers. “I was surprised by the number,” said Lisa Kolton, a social worker in Montclair, in New Jersey, who got an offer for more than $160,000 above her asking price in less than a week. Kolton said she believed that COVID-19, which has made roomier homes with backyards in the suburbs more appealing, was motivating city-dwelling buyers.
“I was anticipating that it would go fast but my realtor was also really surprised by how high it went,” Kolton said. “She told me there were 50 buyers looking at four or five houses, including mine, over the past weekend.”
The sense of urgency buyers report feeling stems from a few factors: The quest for more space as work-from-home and remote learning increasingly look to be longer-term phenomenon, social distancing constraints that dampen the appeal of public spaces such as pools and parks, the speed with which other buyers are willing to make offers, and a desire to lock in record-low interest rates.
“I’ve always loved being in the busy part of Indianapolis, but when COVID happened, suddenly things became less walkable and our living space of 675 square feet felt a lot smaller with two people living and working in the same place,” said Elise Moote, who bought a house in a more suburban neighborhood earlier this month with her fiancee.
Even far from the hot spots of coastal metro areas, Moote said it took a while to get an offer accepted. “The market in the area we’re in is still really competitive. The day before we put an offer in on this one, we had an offer on another home declined,” she said.
But increasing sales, quicker turnover and rising prices also help drive up rental rates — which makes it even harder for the families who don’t already have a foothold in the real estate market. Real estate data analytics firm CoreLogic found that the average rent for a single-family home in May rose by 1.7 percent on an annualized basis. Although this represents a drop from the roughly 3 percent increase of a year earlier, rents on the cheapest homes still rose by 2.8 percent across the board.
Some renters say that staying in their neighborhoods — or even their homes — is getting tougher.
Ventura County, Calif. resident Alexandra South was shocked to see a $400 monthly rent hike when her lease is up for renewal in August. “It just didn't seem like the time or place to be instituting that kind of thing,” she said. “Even in normal circumstances, it’s a ridiculous increase.”
South and her husband, who have a two-year-old daughter, both work in the public sector. “At the end of the day I feel extremely fortunate that we’ve been in a position of employment,” she said, but she added that a rent hike on top of the $3,250 the couple already pays diminishes their ability to save for a down payment. “The prices are so high here. We have student loan debt and some other personal debt that would make it hard to save that kind of cash right now,” she said. “We weren't quite ready.”
The more prices rise, the greater the number of households who see their window of opportunity to own a home closing, said Tom Forker, senior vice president and area market manager at Bryn Mawr Trust.
“There’s a segment of the buying population that can't make that jump. They don't have the down payment and they don't have the income to get there,” he said. “At some point, intuitively, it becomes more and more of a stretch for a portion of the buying public.”