The pandemic home-buying frenzy came to a screeching halt when the U.S. Federal Reserve raised interest rates last June. Rates have since doubled, remaining firmly above 6%. After home sales plunged, the housing sector has recovered somewhat, but it is now facing a shortage of homes for sale, leading the market into a bidding frenzy once again.
It is fundamentally a different market, Bess Freedman, CEO of Brown Harris Stevens, told MarketWatch in an episode of Barron’s Live.
“Housing has just switched from where it was like a full-on party with champagne to a more austere market,” Freedman said. “And that’s to be expected. Rates have doubled inflation, bank collapses, all these things going on. It’s a little bit of a turbulent market right now.”
“‘Housing has just switched from where it was like a full-on party with champagne to a more austere market.’”
The shortage of homes for sale is an issue that’s more acute in certain parts of the U.S. Many home sellers are choosing not to sell and give up their ultra-low mortgage rate. They’re also fearful about not being able to purchase a home due to the low number of homes for sale.
Home prices have risen as a result. CoreLogic said that home prices increased by 3.1% in March, versus the year before. The National Association of Realtors said in April that the median price of a previously-owned home was $375,700.
With higher rates and home prices, “the market is now a disciplinarian. It used to be like ‘Weekend at Bernie’s’ and everybody was just buying, taking risks,” Freedman said. “Today, people are much more cautious and everything is a lot more expensive.”
The film “Weekend at Bernie’s” (1989) is a black comedy, and Freedman is implying that the pandemic buying frenzy was a free-for-all.
Median monthly payment varies by city
The median monthly mortgage payment borne by a household in the U.S. has jumped by 20% from last March. The typical homeowner is paying $2,093 in March, up $357 from a year ago, according to data from the Mortgage Bankers Association.
But real-estate prices vary by state and city. The median mortgage payment in Hawaii was the highest in the nation, at $4,376 (California was second on the list). Homeowners in West Virginia were paying the least for their mortgage, at $1,092 per month.
“You want to work with a mortgage professional that can help you to understand where you are with what your credit is, what you can afford, what monthly makes sense based on your assets and liabilities,” Freedman said.
“If less than 20% of your income goes to pay down debt, a home that is around four times your income may be suitable,” according to this guidance from Fidelity. “If more than 20% of your monthly income goes to pay down existing debts in the household, dial the purchase price to three times.”
“The total house value should generally be no more than three to five times your total household income, depending on how much debt you currently have,” Fidelity adds. “If you are completely debt-free, congratulations — you can consider houses that are up to 5 times your total household income.”
Pivoting from law to real-estate
Freedman told Barron’s Live that she pivoted from a previous career in law.
“I was a legal-aid lawyer here in New York City, and I was expecting my first child, and I was on maternity leave,” she recalled. She had been at her mother’s knitting store on the Upper East Side, and had brought her two-week-old daughter along, when she met Adrienne Berman. The woman would later go on to be her lifelong friend, Freedman said, and an agent with Brown Harris Stevens.
At the time, Freedman recalled that her friend told her she should get into real estate as she would have more flexibility and, for the most part, be able to make her own hours. This resonated with Freedman. “I was working rigid hours,” she said.
“So I thought I would take a chance and pivot and try something new,” she added. Fast forward a couple of decades, and that new mom now helms a storied New York City real-estate firm.
The career gave her the flexibility to work when the baby was napping or when her baby’s father was free to look after their child, Freedman said. “And I took off like a rocket ship because it was so entrepreneurial,” she added.
But she also has some cautionary words for would-be realtors. “Don’t be fooled by anything you see on TV,” Freedman said. “It is a hustle. It’s studying the inventory, working with people, being on time. It’s a tough business.”