Life in the New Normal
The coronavirus and the new work-live lifestyles are changing the way we live our lives. Cities like New York and San Francisco are finding that high-income earning residents are leaving for the suburbs. Cooped-up in small apartments and homes in the city with small children running under foot while both parents are trying to carve our workspace for themselves has caused many to rethink their lives. They’re leaving the densely-populated, riot-riddled cities and heading for the suburbs.
This demographic shift will have repercussions for years to come. Cities like New York, San Francisco, Chicago and elsewhere have been plagued with higher crime and higher taxes for years are finding themselves in a difficult position. Those left in the inner cities will be faced with higher taxes because many high-income earners have left, some temporarily but many permanently.
In the meantime, the economy is showing signs of life. Although GDP output dropped by 31.7%, which was less than economists expected, orders of durable goods like electronics, cars, and household appliances increased by 11.2% for the third consecutive month fueled mainly by strong sales for cars and trucks. Unemployment claims also showed marked improvements with significantly fewer benefit claims.
Real Estate markets are also showing strong signs of recovery. Contract signings for the sale of existing homes increased 5.9% over last year. With home buyers looking for more space, home offices and other amenities, the existing supply of available inventory for sale has decreased sharply causing home prices to rise dramatically. At the end of August, new listings for homes were down 13% year-over-year and total listings were down 37% year-over-year. The lack of inventory has caused median listing prices to rise 10.3% YOY and to sell 9 days faster.
In many areas, the demand for homes has caused bidding wars with home sellers receiving multiple offers. The dilemma for home sellers is that if they sell their existing home to move to a bigger and better home, finding a suitable replacement has proven difficult. It’s put the market into a “Catch 22” where many people don’t want to sell their home because they can’t find a replacement even though it’s a terrific seller’s market.
Adding to this dilemma is that, due to the coronavirus pandemic, the Federal Reserve announced recently that it intends to hold interest rates to zero for the next five years. This announcement has bolstered the stock market and has caused interest rates to continue downward. Freddie Mac’s 30-year fixed interest rate dropped 8 basis points to a low of 2.91%.
With decreasing interest rates and rising home prices coupled with an exodus from the inner cities to the suburbs, the home buying market is experiencing a feeding frenzy even with fewer homes for sale. It will be interesting to see how the next few months play out as the pandemic lessons and life adjusts to the new normal.