Will Real Estate Ever Be Normal Again?


Credit...Photo Illustration by Dan Winters

The third time Drew Mena’s manager asked him about relocating to Austin, Texas, he and his wife, Amena Sengal, began to seriously consider it. They had deliberated each time before, in 2017 and 2018, but landed on a hard no: Drew and Amena had lived in New York for more than 10 years, and they loved it.

They owned a two-unit townhouse in the Bedford-Stuyvesant neighborhood of Brooklyn, and they felt lucky to have it, with its yard and the kind of close-knit neighbors who compete to shovel one another’s sidewalks after a snowfall.

But now it was August 2020, and the pandemic had changed their calculus. When the city shut down, their daughter, Edie, was 7 months old; Drew and Amena co-parented while working full time, one at the kitchen island, the other at the breakfast table. In May, they escaped to Drew’s family’s cottage in New Hampshire, and gradually their tether to the city began to fray.

When the relocation offer came in from Drew’s employer, an asset-management company, they started browsing listings online, and it looked as if they could get a lot more space in Austin. They would certainly save money on everything else, like gas and groceries. The world is ending, they said to themselves. Why the hell not?

Amena, who was born and raised in Houston and attended the University of Texas at Austin, called her parents to solicit their opinion. They were so thrilled at the thought of her return that they suggested she consider buying, and offered to help with the down payment. They could all share the home as an investment property if Drew and Amena moved on.

Amena crunched the numbers and quickly realized a truth about America: Thanks to persistently low interest rates and tax policies that favor the rich, you can almost always get more space with a mortgage than with the same amount in rent.

So she threw herself into the search with zeal. She mapped commutes to Drew’s new office downtown; she found a dozen preschools she liked, and video-toured more than half of them. In her mind’s eye, she drew a backward C around central Austin, cutting out downtown and the expensive west side.

Their maximum budget was $550,000, $575,000 tops. They were looking for a house that was move-in ready, maybe around 1,500 square feet overall, with three to four bedrooms, two baths and a shed or office space for Amena in the backyard — she planned to keep her New York job in education policy and telecommute.

She reached out to John Gilchrist, a close friend from college who was now a real estate agent and, in January, he began taking her on up to four FaceTime tours a day. In the background, she could see other intent buyers, masked but often encroaching on one another. She could sense quality, but scale was harder to discern. “How many paces is that?” Amena would ask Gilchrist. “Can you put your hand in that sink? It looks tiny.”

The day that she and Drew were scheduled to fly to Austin for house-hunting, at the beginning of February, New York was buried in snow and flights were being canceled, so they opted to reschedule theirs. Feeling stranded and agitated, Amena began bidding on houses. There were two for sale in Johnston Terrace, on Emmitt Run, on the same block as Amena’s best friend from high school.

Both were two stories and 1,700 square feet. One, listed for $437,700, was a bouquet of beiges — beige interior and exterior paint, beige carpets, beige linoleum floors and beige oak cabinets. The other, listed for $50,000 more, was being remodeled by its owner and his friends: modern gray paint, white cabinets, dark wood luxury vinyl plank. “We’re all putting lipstick on a pig trying to get our houses sold,” the owner told me.

Amena bid on the beige, imagining she’d use the extra money to do her own remodel. It went under contract for $45,800 over the asking price, or $43,500 more than her bid. A few days later, Amena bid on another home she’d been dying to see on their trip, a black-and-white ranch house in South Austin listed at $460,000.

At the urging of Gilchrist, who told her how tight the market was, she bid more aggressively, offering $495,000, and was chagrined when she lost that house too. For Amena and Drew, their Austin home-buying odyssey was just beginning — a monthslong ordeal that would teach them quite a bit about the cruel realities of America’s housing market, in which home prices nationwide have risen by an astonishing 24.8 percent since March 2020.

And this first lesson, appropriately enough, demonstrated just one of many ways that the old, measured rules of home-buying no longer applied — that the cutthroat competitiveness that once defined only a few U.S. markets (San Francisco, New York, Los Angeles) had now become standard across the country, as the median home price in small- and medium-size metropolitan areas rose by jaw-dropping levels: Boise, Idaho, 46 percent; Phoenix, 36 percent; Austin, 35 percent; Salt Lake City, 33 percent; Sacramento, 28 percent.

By bidding on two properties she had never visited, in a city nearly 2,000 miles away, Amena joined the 63 percent of North American home buyers in 2020 who made at least one offer on a home that they had never stepped into. Homes had been one of the few things resistant to online shopping: We browsed online, but we didn’t buy. The pandemic changed that. The result was a market that moved much, much faster.

What Amena and Drew would ultimately learn about Covid-era real estate was not just the necessity of raising their budget and lowering their expectations. It was also that the whole mind-set required to buy a house, the most important purchase that most Americans will ever make, had undergone a fundamental transformation — possibly a long-term one, given the realities of both supply and demand. Freddie Mac estimated at the end of 2020 that the United States was 3.8 million housing units short of meeting the nation’s needs.

Combine that with the surge of millennials into the housing market — they represented more than half of all mortgage originations last year — as well as the insatiable appetite of investors, who now snatch up nearly one in six homes sold in America, and the contours of a new, lightning-fast, permanently desperate housing market come clearly into view.

“It’s so irresponsible,” Amena lamented, when discussing those first, remote bids they made, and Drew chimed in: “In a normal market you would never do that.” By “normal,” Drew meant a time when a home buyer could tour a house in person, mull it over, go back a second time with her parents or friends and then make an offer with time for an inspection and an appraisal. But there’s reason to fear that America’s real estate market, after passing through the pandemic madhouse, might never get back to that kind of normal again.

Several Austin real estate agents told me the same story about when the “flip switched” during Covid: a sale on Ephraim Road, in the suburb of Brushy Creek, on New Year’s Day 2021. The house was “well cared for,” a buyer’s agent told me, but “nothing out of the ordinary”: two stories in brick, with a large arched window — the sort of place one of Tony’s underlings might own in a Texas spinoff of “The Sopranos.”

It was listed on Dec. 30, 2020, for $370,000, and it seemed like mere minutes until buyers and agents began lining up in the bitter rain to tour the house one by one, a process that took hours….Read more…

By:

Source: Will Real Estate Ever Be Normal Again? – The New York Times

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