Source: The Wall Street Journal
The residential real-estate market is on its biggest tear since 2006, just before the housing bubble burst and set off a global recession. Yet in nearly every meaningful way, today’s market is the inverse of the previous boom.
Anthony Lamacchia, a broker and owner of a real-estate company near Boston, entered the industry in 2004. Home buyers were trading up to bigger, more expensive houses after barely a year, he said. Many buyers paid small down payments, or none at all. When housing prices stopped rising, the market collapsed. By 2009, Mr. Lamacchia was working with clients desperate to dump the homes he had just helped them buy.
Now, he said, housing demand in the Boston suburbs is stronger than he has ever seen. Lamacchia Realty reached $1 billion in sales last year for the first time. Buyers have higher credit ratings these days. They are flusher and are putting down more cash up front.
“On $1 million purchases, people are putting down $500,000,” he said. “You didn’t see that before.”
In 2020, sales of previously owned U.S. homes surged to their highest level in 14 years, and many economists forecast sales to rise again this year.
In the mid-2000s, loose mortgage-lending standards enabled borrowers with poor credit histories to purchase homes beyond their means, sometimes with mortgages that required low payments in the early years of the loan. Too much new construction led to an oversupply of houses. Financial firms packaged these risky mortgages as securities and sold them to investors. When more homeowners started defaulting on their mortgages, lenders suffered large losses and the entire financial system froze up.
Many homeowners paid a big price. Between 2006 and 2014, about 9.3 million households went through foreclosure, gave up their home to a lender or sold in a distressed sale, according to a 2015 estimate from the National Association of Realtors.
The current housing boom is far more stable than the last one and poses fewer systemic risks, economists say. A downside: There are more barriers to entry, and it’s more difficult for buyers who aren’t already homeowners to make that first purchase.
Most real-estate analysts agree that the pandemic helped ignite the current boom as some urbanites looked to leave crowded cities like New York and San Francisco for cheaper cities or for more space in the suburbs while working from home. When lockdowns began lifting last year, home sales took off: June sales surged nearly 21% over the prior month, the biggest monthly increase on record going back to 1968. That milestone lasted only a month, when July sales rose almost 25% from June.
“Covid has catalyzed a rethinking of where we live, and why we live there, and where we work, and how we work,” said Rich Barton, chief executive of online real-estate company Zillow Group Inc.
Market watchers also say that a number of longer-term trends are at play that should keep the housing market hot, or at least steady, even after Covid-19-related demand fades.
Millennials, the largest living adult generation, continue to age into their prime homebuying years and plunk down savings for homes. At the same time, the market is critically undersupplied. New-home construction hasn’t kept up with household demand, and homeowners are holding on to their houses longer. Buyers are competing fiercely for a limited number of homes.
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