October 25, 2021

Dare Quill

The Real Estate Maniacs

Here’s Exactly What’s Wrong With Every House for Sale Right Now

10 min read
  • Americans are still looking to snap up homes even though the real-estate market is frenzied.
  • Homeownership typifies the American dream, which is why so many are willing to overpay.
  • But from new builds to fixer-uppers, there are many reasons to steer clear of every type of home.

The allure of homeownership is so irresistible — and so expensive — right now that some homebuyers are paying an eye-popping $1 million over asking price.

The pandemic inspired a mass migration fueled by the rise of remote work unchaining employees from traditional offices, the desire to live in larger spaces while spending less money, and record-low mortgage rates. The movement upended the housing market, which led Google searches for “should I buy a house?” to spike and about 36 million Americans (according to one Zillow estimate) to trade homes in 2020.

Now there are a record-low number of houses on the market, which has propelled property prices to their highest rates in 15 years. And that’ll continue.

A recent Bankrate survey of 2,653 American adults found that 74% of respondents named homeownership the top milestone required for achieving the “American dream,” with the ambition ranked ahead of being able to retire, having a successful career, having children, and getting a college degree.

“Owning a home still tops the American-dream list,” Mark Hamrick, Bankrate’s senior economic analyst, said. But trying to buy a home right now, Hamrick added, “can cause a rude awakening if one fails to plan for inevitable expenses.”

For that very reason, it’s all too easy to find downsides to every kind of single-family home on the market right now, from new builds to decrepit fixer-uppers. Costs vary from labor and lumber to appliances in short supply with shipping delays. The hypercompetitive market is goading prospective buyers into shelling out cash and taking on debt for properties despite their financial and emotional costs.

To be sure, downsizing to smaller homes like townhouses, condos, and apartments is an option for buyers on a budget. But the American dream is most closely associated with the single-family home — even more so now because of pandemic-charged desires for more space and a property of one’s own.

Here are the daunting challenges you can expect with every type of house right now:

Single-family homes will be difficult to find at all

The National Association of Realtors found that there were just 1.23 million unsold properties in May, down 20.6% from last May’s inventory. That means at the current sales pace, houses could run out in just 2 1/2 months.

There are so few existing single-family homes on the market that sales in May were down 1% from April (and somehow still up 39.2% year over year), likely because of a lack of options and sky-high prices, according to the National Association of Realtors.

The median existing single-family home sales price hit $356,600 in May, representing a 24.4% year-over-year increase, the organization said. 

The combination of low inventory and steep prices fosters a level of competition marked by all-cash offers and bidding wars.

Glen Clemmons, a broker in North Carolina, previously told Insider that both he and his buyers felt “beat up” from participating in so many bidding wars. “I had one client who wrote 15 offers” before finally landing a home, he said, adding: “That’s exhausting.”

House for sale US

Homes are under contract within days of listing, often after fielding multiple offers.

Saul Loeb/AFP/Getty Images


The other hopefuls battling it out in bidding wars like the ones Clemmons lamented might not even be other “beat-up” house hunters — they could be a $50 billion private-equity firm. Large-scale investors have been scooping up homes across the country to rent them out for a profit, beating out everyday Americans by offering cash and skipping due diligence. In other instances, some firms are nabbing homes at below-market prices for cash, only to turn around and sell them for tens of thousands more weeks later, which adds to competition in the market.

As more and more people get priced out, they could turn to renting single-family homes, ultimately lining the coffers of these Wall Street firms and leaving single-family homeownership out of reach.

Bottom line: You will fight other people — and Wall Street firms and corporate buyers — for a single-family home because there are basically none left. Inventory is expected to creep back up as early as 2022.

Starter homes will be priced like forever homes

Homeownership has always been considered the best and clearest path to wealth — 41% or respondents in a recent Gallup poll recently said real estate was the best long-term investment, over stocks, gold, savings accounts, and bonds. That, in and of itself, explains why Americans would want to snap up a property and start building home equity as early as possible.

Starter homes — or smaller properties with a low price point — are the ideal foray into the real-estate market for millennials, who tend to have high amounts of student-loan debt and less wealth than their parents did at their age. But starter homes — which had a median price of  $215,000 in the more stabilized housing market of 2019 — are nowhere to be found these days.

Ballooning prices and all-cash buyers like Wall Street investors are creating too vicious a market for young, hopeful house hunters who are looking to buy homes they expect to outgrow. And existing homeowners are reluctant to find a new place to live during a pandemic.

Brad and Jami Pettiford, for example, bought a house for $162,000 in Grosse Pointe Woods, Michigan, in 2015 and are ready to upgrade after having two children. They told The Wall Street Journal that the homes they were interested in cost more than $500,000: “It makes you pause and think,” Brad said, “is it really worth it?”

So the Pettifords are staying put, and that’s one less starter home expected to hit the market. Those who can’t battle their way through bidding wars over the slim pickings better be able to skip the starter home altogether and head straight for multimillion-dollar digs.

What’s more, home construction has not kept up with the need for entry-level homes over the years. The Home Buying Institute found that the number of new home constructions below 1,400 square feet had plummeted to a 50-year low. In the 1980s, smaller new builds made up 40% of all construction activity in the US, but in 2020, new builds account for only 7%.

The houses being built today are much larger. The median size of a single-family house completed in 2020 was 2,261 square feet, according to US Census Bureau data.

Bottom line: If you’re a first-time homebuyer, you’ll be eyeing affordable starter homes. But those are more in demand and even harder to find at a reasonable price. As inventory slowly returns, listing prices should ideally ease up in 2022.

Newly built homes will cost you time and serious money

Builders are struggling to shore up home supply at any house size, not just the starter level. Construction costs are soaring, and a labor shortage is affecting the industry, but demand remains high.

Interest in newly built homes remains so high, in part, because the US has “been underbuilding for years,” Gay Cororaton, the director of housing and commercial research for the National Association of Realtors, previously told Insider. In the 2010s, contractors looked to support demand after the 2008 financial crisis by holding back supply, Cororaton said.

That underbuilding will likely continue because of supply-chain issues, specifically with lumber. When the pandemic hit, sawmills shut down over pandemic-related safety restrictions, and even though lumber production has since ramped up, it hasn’t been enough to keep pace with homebuilding needs.

Lumber

Lumber could add over $35,000 to the price of a newly built home.

Justin Sullivan/Getty Images


“When you think about the amount of housing that we’re going to build in the US over the next three, five, 10 years, that’s just a significant amount of demand for wood products,” Devin Stockfish, the CEO of one of the largest lumber producers, Weyerhaeuser, told investors at a conference in mid-June.

Meanwhile, the National Association of Home Builders found that lumber prices have been so high that they could stand to add over $35,000 in costs to a new build. The cost of lumber hit $1,700 per thousand board feet in May, largely because of pandemic-induced supply-chain issues.

While the cost of lumber slid to just about $1,000 per thousand board feet in June, the prices are still up 170% year over year. Elevated building costs are even pushing contractors to raise prices to protect margins and purposefully make fewer sales to ensure all contracts are fulfilled, according to an April survey by the National Association of Realtors.

The lumber and labor shortage are also influencing unbuilt new homes that have already been purchased: Builders are running behind on homes that have already been authorized for construction because they don’t have enough money or manpower to build them. Almost one-quarter of a million homes across the country have yet to start construction, the highest level since 1979, according to the US Census Bureau.

Bottom line: You will wait endlessly for the completion of a new build whose price has skyrocketed because of the cost of labor and materials. But lumber prices are already cooling, which could provide builders much-needed relief soon.

Fixer-uppers will end up feeling just as expensive as the other options

Insider’s Hillary Hoffower reported 82% of millennials in a Bank of America Research survey said they were more likely to buy fixer-uppers over any other type of property as a way to get in on the cutthroat housing market.

Their second housing crisis in 12 years forced many aspiring young homeowners ages 25 to 40 to get creative, she wrote. One such strategy is buying the most budget-friendly property and leveraging sweat equity to make it livable. While the 82% of millennial respondents in BofA’s survey said they were more likely to buy a fixer-upper than a newly built home in an effort to slash housing costs, renovating an old house doesn’t always accomplish that.

American spending on home improvement and repairs surged in 2020, creating a $420 billion market, according to a study by Harvard University’s Joint Center for Housing Studies.

The most in-demand home-improvement projects cost less than $20,000, according to National Association of Home Builders data, but millennials were likely to take out loans to fund projects exceeding $10,000. A total renovation, on the other hand, is likely to cost somewhere between $100,000 and $200,000, according to Rocket Mortgage.

a kitchen construction site with installations going in

While some home-repair projects aren’t so pricey, the total renovation of a home could cost over $100,000.

Gioi Tran


One 27-year-old told the New York Post that she paid $18,500 for a dilapidated Victorian home in West Virginia in May 2020 but estimated her renovation of the property would cost hundreds of hours of work and upward of $125,000 — and that was just before lumber and labor prices took off.

Those who purchase fixer-uppers right now can expect to spend even more. The series of shortages and shipping delays that have ratcheted up the prices of new builds are also making it difficult to renovate existing homes on a budget.

Lumber and semiconductor chips, for example, make anything involving wood or big appliances a pricey decision that could take weeks to sort out. Lumber could add tens of thousands to the price of a home, while a freshly ordered refrigerator may not arrive until October, Josh Wiener, the founder of the home-improvement firm Silver Lining Inc., previously told Insider.

Bottom line: If you settle for a fixer-upper that was supposed to be cheap, you’ll incur major expenses and long delays trying to fix it up because of supply-chain issues that may not abate until early 2022.

Rural homes will fuel regret for urban fleers

Even people with looser purse strings are experiencing buyer’s remorse.

When the world shut down in March last year, some well-to-do city dwellers saw an opportunity to act on flights of fancy that had previously been impossible because of in-real-life work, school, and community obligations. Many sought out a secluded rural home.

Privacy and access to acreage is attractive to many, but for the uninitiated, abandoning cities for greener pastures isn’t so simple.

First, consider expenses. Rural properties, like all other homes on the market, spiked in price amid the pandemic. One New York woman opted to rent a townhome in Montana instead of buying to save money. She pays $2,000 a month for that townhouse — the same rent she paid for a studio apartment in Brooklyn, a notoriously unaffordable rental market. Even though she recognizes she is getting more space, she said she thought she would be spending less.

rural ranch in Montana

A rural ranch home, while idyllic, requires a lot of upkeep and could feel isolating.

Natalia Bratslavsky/Shutterstock


The drawbacks could pile up after that.

Tyner Lawrence broke the lease on the Boston apartment he shared with his fiancée and relocated to a three-bedroom property hidden in the woods in New Hampshire the day Massachusetts declared a state of emergency in March 2020.

Lawrence told Boston Magazine that he and his fiancée first enjoyed being in a quiet place with lots of natural beauty, but they quickly began to long for city life. Finding mice living in their car as the winter picked up, hearing a bear on a hike, and living more than a two-hour drive away from any family or friends wore on the couple. By Thanksgiving, they were looking to buy a new place in Boston.

Out in the middle of nowhere, there could be a limited sense of community. It could also be much harder to access once typical conveniences: Amazon Prime packages could take weeks to arrive, take-out dinner is simply not on the table anymore. 

And then there’s all the upkeep needed for remote homes. “Regret sets in,” Rachel Kalvert, a psychoanalyst, told Boston magazine, “and you realize the house with a fence and a big backyard that needs mowing wasn’t the best choice after all.”

Bottom line: If you ran for a rural home in the hills, you likely are already planning a return to city living. If you’re still considering making the move, mounting downsides like upkeep costs could cause buyer’s remorse.

Copyright @ darequill.com | Newsphere by AF themes.