Two seemingly contradictory reports were issued on June 25 on the state of the nation's real estate market.
One says wealthy checkbooks are open. The other says many people will be writing a smaller check. What gives?
Realtor.com is a website, and part of their methodology is to measure what people search for and where they click. So really, research by navel contemplation. Since they don't marry those searches and clicks with actual buying, there's a disconnect between putzing around on a website and purchasing.
In order for me to get excited about what Realtor.com is purporting, I'd want to tie clicks to buying and the time that journey takes. I'd also want to understand the lookie-loo quotient – you know, when you look at bazillion-dollar homes to get design ideas for your tin shack.
Realtor.com has measured those clicks for years and is able to track increases and decreases which is what they report as a sign of a market segment's health.
The "Luxury's Back" headline almost exclusively referred to increases in search activity in luxury suburban markets outside former COVID-19 hotspots like New York City and Los Angeles: The Hamptons; Greenwich, Connecticut; three New Jersey counties outside New York City; and Palm Springs, outside Los Angeles.
To be fair, Realtor.com does say that "COVID-19 hit these regions hard and early compared to the rest of the country, prompting potential buyers to reassess their needs and priorities."
Since Texas learned nothing from New York's so-far-successful handling of COVID-19, will Dallas’ outer suburbs and exurbs reap rewards after we've put out our new viral fire?
Realtor.com says that $1 million-plus property listings in Dallas were down 24 percent in May and down 2 percent in asking price versus a year ago, but that searches were only down 2 percent – meaning listings took a much larger hit than buyer interest. It also might be saying that the 2 percent decrease in prices might equate to a few hugely expensive listings not coming to market.
It's also important to understand that the $1 million-plus market in Dallas is less than 2 percent of the market, making it easy to skew.
ATTOM Data Solutions
Attom’s second quarter U.S. Affordability Report isn't focused on the luxury market; "affordability" in the title being a clue. They measure 406 counties with populations over 100,000 that had more than 50 housing units change hands.
When they say affordable, home prices (and their resulting mortgages) are only one component that also includes wage growth, property taxes, and insurance. Swirled together, they report on how affordable a county is calculating a median-priced home, a 3 percent down payment, and a 28 percent debt-to-income ratio for housing balanced against the wage required to afford that home versus average local wages. Consider it a ratio of what ya got versus what it costs.
Here it is by county:
median home $278,875
average wage $71,097
% of annual wage to own: 30.6 percent
median home $251,830
average wage $57,798
% of annual wage to own: 31.7 percent
median home $310,000
average wage $51,532
% of annual wage to own:45.3 percent
median home $347,438
average wage $68,406
% of annual wage to own: 38.5 percent
In the second quarter, 200 of those 406 counties that ATTOM measured are more affordable, up from last year when only 126 were deemed affordable. ATTOM cites increased wages and falling mortgage rates as the main drivers. But while more affordable, 74 percent of average wage earners would have to spend more than 28 percent of their wages on housing – putting them at greater financial risk.
In Dallas County, a median-priced home ($278,875) would require 30.6 percent of an average $71,097 annual wage. In Denton County, it’s 45.3 percent of average wages.
The number one unaffordable spot was taken by Marin County, California, north of San Francisco. There, you’d need 109.4 percent of average annual wages to buy a home.
What’s interesting about this calculation is that it brings together the multiple financial pieces needed to understand how much people can pay. Lower interest rates and higher wages lower a monthly nut even when there’s some level of price appreciation. A small win-win for buyers and sellers.
This is especially true for Dallas where prices have increased rapidly since the end of the last recession. ATTOM notes that in the past year, Dallas County home prices were up 11 percent. While lower interest rates and increased wages can’t make up for that, they make a dent – Dallas ranks fourth in prices outpacing wage increases year-over-year.
Unemployment will be the decider
The sky isn’t falling anywhere. Interest rates, investment gains, and wage increases are giving both ends of the market stabilizing confidence. We’re still behind in new home construction, and while April was down more, May was still down 12 percent year-over-year. This will tighten supply further and likely drive up prices. While there is contraction in home sales, it’s in large part driven by fewer listings, as market dynamics seem to be pointing to an unemployment picture that’s impacting renters more than buyers.
According to a Gallup poll, of workers earning less than $36,000 per year, 95 percent have either been laid off (37 percent) or suffered reduced pay (58 percent), yet only 30 percent of those laid off have been approved to receive unemployment benefits.
So yeah, the home buying and selling market remains little changed with some potential bright spots – but take it with a pinch of survivors' guilt, if you still have a job.
A version of this story appeared on Candy's Dirt.