Super Seller’s Market
Residential Real Estate is Enjoying a Historic Boom. How Long can it Last??
In early March, there were fewer than 250 residential real estate listings in Frederick County, and only about 100 of those homes were available to move into within 30 days. Consider that typically the county real estate market usually has around 900 to 1,200 homes for sale.
“If you think about a family wanting to find a home that meets their needs, that is going to be extremely difficult [in this market] and you are going to be in crazy competition,” says Terry La Scola, president of the Frederick County Association of Realtors and broker/owner of Welcome Home Realty Group. “… It is a circus when a house goes on the market.”
La Scola and others in the real estate industry believe there are several factors driving the booming seller’s market—the biggest might be interest rates dipping to historic lows, around 2 to 3 percent. “A buyer’s borrowing power is extraordinarily higher than it was just a few years ago just because the interest rates are so much lower,” says Dee Dee Miller, Maryland Realtors president.
Another factor is supply. Many potential sellers are holding off on listing their homes, creating gridlock. “Anyone who is listing, generally speaking, they are getting more than one offer and sometimes many offers just because the demand right now is far outweighing the supply,” Miller says. “Any time you have that imbalance you are going to have a market like this. … Right now, anywhere from one-to-three-month supply of inventory is considered a seller’s market, so this is a super seller’s market. We have less than a month’s supply of inventory across the state of Maryland right now.”
The COVID-19 pandemic also caused many to reevaluate their living spaces, including being able to work from home. “I think a lot of folks realized the space they were quarantined in was either not big enough or not optimal for their needs,” says Drew Hopley, co-founder of real estate firm Live Frederick Sell Frederick.
Another pool of buyers in the local market emerged from those who lived closer to Washington, D.C. With a greater ability to work from home, many realized they could get a lot more space for their money in Frederick County. “We have a huge increase in demand in our area,” La Scola says. “Not only from Washington, D.C., but also the metro area, Northern Virginia and from out of state because they can live anywhere and Frederick County has had some great publicity as a wonderful place to live.”
The market for housing under $400,000 has been quite competitive for the past few years, but now the county is seeing an increase in the luxury market fueled by individuals with higher-paying jobs now working remotely. “With that demand and an extremely low inventory, we are running less than one month’s worth of housing to feed the amount of homes that people want to buy,” La Scola says. “In essence, there are 12 buyers to every house that we are selling. In a normal balanced market, we would have on average six months of housing inventory to feed the pool of buyers.”
These factors have homes seeing dozens of showings in the first days on the market and getting multiple offers. Buyers often propose contracts above asking price and make tantalizing offers such as waving home inspections or appraisal contingencies—all to outmatch others. Most homes are selling as is, without owners having to make major repairs, like new roofs or heating and air conditioning systems, or even minor cosmetic changes like painting. “If you are a seller, it is an incredible time to sell,” La Scola says. “If you own anything and you want to get cash out of it … it is an incredible time to sell.”
SUCCESS AND STRESS
On one day in early March, Katie Nicholson of the Katie Nicholson Team of Coldwell Banker listed a house that within a few hours had 16 showings. She expected at minimum four offers. “We purposely keep [listings] on for a couple days, although we could sell them instantly, but the reason we don’t [sell immediately] is because it allows more offers to come in for sellers,” she says.
When associate broker and senior real estate specialist Tracy Grubb of Real Estate Teams started in the industry nearly 30 years ago, real estate agents would tell clients they needed to allow six months for their house to sell. “Now, if it doesn’t sell in the first three days, people are freaking out,” she says.
In today’s booming market, Grubb notes she may list a property on a Thursday and have up to 45 or 50 showings over the weekend. “I am encouraging my folks, if they are living in the house, to list it on Thursday and go away for the weekend because otherwise you won’t be able to come home anyway,” she says. “Leave for the weekend and we will look at offers at the end of the weekend or on Monday morning.”
Many agents are working seven days a week trying to get their clients time slots for showings as well as crafting appealing bids. They are also evaluating multiple bids to make sure they are advising clients on the best deal that is most likely to get to settlement.
“As exhausting as this is mentally for the client, we [real estate agents] are right there lockstep with them, and it is mentally exhausting for us as an industry trying to help our clients and I think people lose sight of that,” says Miller of Maryland Realtors. “… We are emotionally invested in our clients. If you lose that third or fourth [bid] and you’ve got to call that client and say, ‘You know that you made the best offer that you possibly financially could have made,’ and yet it wasn’t good enough. I mean, that is tough. That is rejection in its highest form right there. Then, you’ve got to talk them off the ledge and tell them it wasn’t the right one and there is going to be a better house for you. It is a daunting task and it becomes really emotionally exhausting for all parties involved.”
La Scola also has many concerns about the lack of affordable housing and how the market is affecting underserved and underprivileged buyers. Many already pay rent prices larger than what a mortgage would cost but lack the money for a down payment. “We are definitely going in a bad direction here,” she says. “… When you are buying in a market like today, cash is king.”
Even government programs that provide down payment assistance are overwhelmed by market forces. “Just helping with a down payment won’t help you with a house that you have to buy for more than what it is worth,” La Scola says.
Maryland Realtors has launched the “Open Doors to Stronger Neighborhoods” campaign as a way to work with leaders to look for ways to promote affordable housing, including offering help to first time homebuyers as well as influencing builders to include some lower-priced units in their developments. Frederick County does not have any affordable housing requirements for builders.
“The biggest concern in this market is lack of affordable housing and lack of opportunity to housing that you have right now in terms of lower-income individuals and individuals of color,” La Scola says.
With many workers still telecommuting a year into the pandemic, parts of commercial real estate have taken a hit. Some businesses are now reevaluating if they need as much office space as they had before the lockdowns occurred. Miller notes landlords may want to make tenant improvements to redistribute the spaces that they are leasing, based on renter demand.
“Commercially, the landlords who are going to be able to provide that for their tenants and be flexible in revamping the spaces that may currently exist will probably be the ones who are going to survive this whole COVID situation in the end …,” Miller says. “I think there is going to be a push toward that happening.”
Before the pandemic, Frederick’s commercial office space market was struggling to fill vacancies. The area was continuing to recover from the loss of Bechtel Corp., which moved more than 1,000 employees to Virginia in 2015.
Another area of commercial facing hardship is retail/food industry. “Some of the [closures] we saw immediately and some of the [closures] we are starting to see,” says Ashleigh Kiggans, vice president of MacRo Commercial Real Estate. “I really think we will see most of those [closure] effects start to happen probably in the next 6 to 12 months. Maybe beyond that.”
Kiggans notes that while office and retail are slowing down, one part of the commercial market that is growing is land acquisitions for warehouse and flex space. “Frederick still has a huge need for warehouse space,” she says. “There are a lot of companies that have seen growth during this time and are expanding. … Frederick is still a very attractive place for newer companies and newer businesses because of the residential development that is going in. They are playing very nicely into each other, just in a different way.”
Overall, Kiggans says commercial real estate in the county remains strong. With more people moving to the area, Frederick will need additional commercial spaces. “I do think we are going to recover from this,” she says. “I just think it is going to take some time. I think the slowest recovery is going to be in the retail and the office side for the higher-end retail.”
She recently put a small, 800-square-foot retail space on the market and the property leased in two days. “There are a lot of positives that are happening,” Kiggans says. “… The residential development is great for us. We love to see it because it is only going to help us.”
BOOM OR BUST?
With prices and demand continuing to soar, some worry the only place left for the market to go is down. And on every real estate veteran’s mind is 2008’s bursting bubble that led to many foreclosures and short sales and triggered the Great Recession.
Experts, though, say it will not happen this time, pointing to modification to the poor mortgage lending practices that caused the 2008 crash. “We don’t look at this [current market] as a bubble,” Miller says. “Economists aren’t either.”
Grubb, with Real Estate Teams, notes the boom is not due to a real estate issue. “This is a COVID issue,” she says. “The real estate market was really strong before COVID, but we had more inventory. I think the only way for prices to bottom out is for the inventory to skyrocket and then you have too much supply and not enough demand. But if we like to have between 900 and 1,100 houses on the market [for a balance] … we have a long way to go before we have too many houses on the market.”
Local agents believe interest rates will slowly start to climb, which will cause buyers to back off some. Sellers will not want to miss out on the lower interest rates, so they will list more. These factors could lead back to a more balanced market. The rates “can’t stay where they are forever,” Miller says. “That’s crazy. It is not sustainable.”
Because demand remains high, La Scola does not see the boom ending any time soon, especially if working from home is going to become a permanent social change. Some people will need to find houses with at least one or more dedicated home offices. “Architecture may change if we have a solid social change that is happening here,” she says. “… Demand is not likely to change any time soon because people need to find space to work from home.”
Grubb agrees demand will remain strong. “As people are willing to put their houses on the market and have people come through them and make moves themselves, I think that prices may calm down a little bit,” she says. “It is like the Wild West out there right now.”