Is it a seller's or a buyer's market? Yes.
If I had a crystal ball, I would most definitely use it to invest in real estate. Things are hot! Instead, I read, and read, and read some more. I've based the information below on substantial research, experience, and what I'm witnessing day to day.
[Caveat 1: I am not a financial professional. Thus, I cannot share an expert opinion, merely what I am seeing and reading. And, oh, how I read!]
Why We Won't Tank
Reason #1: This isn't 2008
Unlike our prior market crash in 2008, the financial market performance is not subservient to the real estate market and vice versa. The 2008 financial market crash was triggered directly by the immediate preceding mortgage crisis. Banks were lending hand over fist, people with no business buying bought and bought a lot, and the financial products that enabled the mess were built on shoddy foundations.
In 2020 we live in a far different real estate universe. The population growth (primarily caused by the birthing of us damn Millenials) has spawned a mega generation of first time home buyers. These buyers don't trust the authority, they don't trust the financial markets, they lived with their parents long enough to save, and they're so over mom and dad. (We're kidding you're still our best friends).
While you may read articles suggesting Millenials are good for nothing, layabouts, who live for experiences and avocado toast... we're also savers; savers, who are just starting families and need places to live. This wave of new humans (among other contributing factors) has added to the demand for homes, and the market cannot produce enough of the type of homes in demand.
Meanwhile, the pandemic has caused sellers to withdraw their homes from the market. Those who were zealous for change earlier this year are more risk-averse, hunkering down, and staying in place, literally.
Demand has also decreased. It may feel significant compared to January. But, when compared to prior years demand has not dropped nearly as much as you think. According to a recent Redfin study, demand has decreased by 15% but, supply is at a 5-year low. Just how low? According to Zillow, housing inventory is down 21% from this same time last year.
In New Orleans and many cities like it, housing stock was lean before COVID. It's now emaciated. Of course, all of this is impacting both the asking price (or list price) and the agreed upon sold price (or close price).
At this time last year, the median listing price in New Orleans was $242,400. The median sales price was $20,000 less at $222,500. Today the median asking price is $252,000.
That's a full ten-thousand dollars over last year's list price! And homes are selling! The median sales price this year? $242,500. That means homes are closing $100 higher today than they listed for last year! It also means room for negotiation has been cut in half.
For the housing market to crash, many factors will need to change to impact demand, or thousands of homes will need to be built practically overnight.
Reason #2: The economy isn't equal
Recent economic reporting discovered that lower-income individuals are sadly disproportionately affected by our current state of affairs. According to MarketWatch, people earning $40K or less are far more likely to lose their primary income source than those making more. People earning $75K or more are far more likely to have jobs not (yet) impacted.
Yet, the average home buyer in the U.S. earns $90K or more (also MarketWatch). With the average home price in New Orleans hovering around $250,000, (GSREIN), the average home buyer here would require a nearly six-figure income to qualify for a mortgage to purchase it. "But Elisa, where are these jobs coming from?" Turns out, the answer may be out of state.
As more and more jobs shift to a permanent work-from-home model, home can be anywhere. I receive calls from New York, San Francisco, Austin; you name it several times a week. These buyers "have always wanted to live somewhere else," and that somewhere else is often New Orleans. They aren't in a rush, but they can't wait to leave their shoebox apartment. (Which by the way costs ($1500 or more a square foot in their current town). And hooray! They're going to stay remote!!
Unfortunately for all looking for homeownership opportunities of a more affordable nature, you may need to explore our sister communities just outside city limits. New Orleans propper, especially our historic core, will see an influx of new, deep-south-expats unless something changes drastically.
Reason #3: The Fed and the banks are being generous
Back to Millenials. In addition to learning how to get free junk through growing their Instagram followings, Millenials are also learning how to get mortgages, at low rates, and quickly. Mortgage rates, spurred by The Fed's most recent reductions, dropped below 3% last week!
A low-interest rate not only means that you pay less to the lender over the life of the loan, but it also means your monthly interest payment is lower. Simply put, a lower rate means you can afford more home.
Couple low-interest rates with financial products that allow first-time homebuyers to buy for as little as a 3.5% downpayment, and a lower required credit score, and buying just became a reality for many more people. You read that right. You can get a home today with a downpayment as low as 3.5%!!
The combination of low money down and lower payments each month means that even more buyers can afford more expensive homes. In New Orleans, this means that $250,000 home just became a reality for more people.
And, for those truly "worthless Millenials," who don't save, don't earn and don't learn how to borrow, inheritances are coming in strong. In short, don't worry about where the money is coming from, the money is coming.
[update - while writing this post the Fed just announced they are going to extend their lending program to the end of 2020. That money will continue to come].
One Reason the Market May Tank
We don't know what we don't know. 2020 has thrown more improvisation at us than a brass band in Storyville. COVID, market volatility, overseas flooding, dust storms, murder hornets!!
If 2020 has taught me anything, it's not to ask, "what's next?!" I'm an eternal optimist, but until one of us procures a crystal ball, I'm sticking with what's now. And what's, now is a New Orleans housing market where non-luxury residential homes (those $500K or less) are selling quickly and selling near, over, or at ask.
Is it a better time for sellers or buyers? It's a great time to move, period. If you're itching to, I'd love to help!
Voted Neighborhood Favorite by Nextdoor, Team Cool Murphy is a top-producing, licensed real estate team based in New Orleans, brokered by Cool Murphy, LLC.
Celebrated for her next-level creative approach to real estate, Elisa Cool Murphy is an award-winning, top-performing agent in New Orleans and the founder and leader of Cool Murphy, LLC.
Contact Her -
email: cool@coolmurphy.com
Facebook: @homeinneworleans
IG: @coolmurphynola
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phone: 504-321-3194
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