Redfin’s Daryl Fairweather talks homebuying, Delta variant

Alcynna Lloyd: Hello, HousingWire listeners. Today I’m joined with Daryl Fairweather, the chief economist at Redfin. Thanks for joining us on HousingWire Daily, Daryl.

Daryl Fairweather: Thank you for having me.

Alcynna Lloyd: Of course, it’s great to have you back on. Listeners, today, Daryl will be speaking to us about the housing market’s homebuying conditions, and how demand could be impacted by another wave of the COVID-19 pandemic. Daryl, I want to start off by discussing Redfin’s recent report, which focuses on the nation’s homebuying conditions. According to Redfin, this month, the five-month streak of record-setting home prices ended, as supply began to inch up. As a result, at $362,750, the median home sale price did not set a new record high for the first time since early March. Instead, it was flat from the four-week period ending July 25th, and up 18% from a year earlier.

My first question for you is, while inventory is partly attributed to August’s stagnancy, what other factors contributed to the lack of increase in home prices?

Daryl Fairweather: The main factor that I think home prices are stagnating is that for the last year, we’ve had kind of a reset in the housing market. People have been able to work from home, mortgage rates dropped to record lows, and for the last year, home prices have been increasing because of those factors. But now, home prices are at a new equilibrium. It’s no longer some great deal to move from the city to the suburbs, or to buy a home with a low mortgage rate, because home prices have gone up so much. And, because it’s already baked into home prices, there’s really no reason to see a lot more home price appreciation. Those factors are still with us, but they’re not new anymore.

Alcynna Lloyd: All right, so, diving deeper into the report, according to Redfin’s data, transfer home prices, sales, and new listings are starting to resemble the patterns we typically expect for this time of year. This is because Redfin claims measures of competition and home selling speed are plateauing as pending sales slide and new listings climb. If these trends continue, will homebuying conditions improve, especially as the job market sees an uptick in employment and mortgage rates remain low?

Daryl Fairweather: I believe it will be easier to buy a home, but it won’t be any cheaper. So, because we’re now approaching an equilibrium between supply and demand, home prices should stabilize. You probably won’t face so much competition on putting an offer on a home. And that’s because the listed price should be closer to what the home actually sells for. Earlier this year, we saw homes selling for 10% and 20% above listed price. Nobody knew what the actual sale price would be. People would just put the home on the market, and let bidding wars ensue to figure out what the ultimate highest price was people were willing to pay.

I don’t think we’re gonna see much more of that anymore. The market is more stable. Sellers can look at comps for just a couple of months ago and have a good idea of what their home will sell for. They’ll price it more appropriately to what demand is. And but that will mean that these homes will take a little bit longer to sell because they look like some great deal just based on the listing price. It will only attract buyers who are serious, there’ll be fewer of those buyers, and you’ll probably be able to get your home offer accepted with an inspection contingency or financing contingency. Buyers won’t have to go above and beyond. They’ll just have to meet the price that sellers are putting on these homes.

Alcynna Lloyd: All right. Now I want to focus on a point you addressed in the report. In a quote, you say, “Although homes are much pricier now than they were before the pandemic, home buyers now have the benefit of very low mortgage rates and a little less competition than they faced earlier in the summer.” Is this decline in competition attributed to inventory declines, or is the market just not as hot?

Daryl Fairweather: The declining competition is because home prices have gone up so much that many buyers have just gotten priced out. They’re looking at renting now, instead of buying. I do expect to see rents increase, because there will be more people going that route, but that means that home prices should be stable. So, it really is just that home prices have gotten to their top, the top that people are actually willing to put up with, and many buyers have just said forget it.

Alcynna Lloyd: Well, so, a quick question here. So, as these people return to renting, how likely are they going to be to enter the housing market after… Let’s say they decided that they didn’t want to reenter the market after returning to renting?

Daryl Fairweather: Right now, or maybe this moment has already passed, but over the last couple of months, it has been a better deal for many people to rent versus own, because the housing market, prices have gone up so much, rents were pretty stable. They even fell in some places during the pandemic. So people are thinking if they get priced out of the housing market, they’ll go back to renting. That price difference isn’t gonna last for long, though. As more people enter the rental market, rents will go up, and I think that will happen fairly quickly. I would expect to see rents start to rise, or continue to rise, throughout next year, and as they rise, people will, you know, look at what they can get for renting, and decide that homeownership does look more appealing again.

It will depend somewhat on mortgage rates staying low. I think mortgage rates will stay low. So, assuming mortgage rates stay low, I think that we’ll see another strong housing market next spring, with people exiting the rental market and going back to the housing market.

Alcynna Lloyd: Okay. So, for my next question, let’s continue to talk about these home buying trends and something that could impact them. According to the Centers for Disease Control and Prevention, the vaccination rate for the United States sits about 50%, at 50.1%. And while more Americans have expressed interest in becoming vaccinated, healthcare providers are still concerned. This concern has only heightened, as data indicates more and more Americans are becoming infected with the easily contagious and fast-spreading Delta variant, a strain of the virus that has proven to be very deadly. As a result of poor vaccination rates and an uptick in Delta infections, many local governments have once again implemented precautions such as mask mandates. As we remember from 2020, mask mandates often preceded lockdowns, which did transform local housing markets.

My question for you is, what could possibly happen in the housing market if we continue to see an uptick in infections, or if a national lockdown is reenacted?

Daryl Fairweather: I think that if we continue to see more infections and more mask mandates, that more offices will delay their return-to-work schedule, or may even just allow remote work indefinitely. And if that happens, I expect to see more people moving away from the city center, into the suburbs, or even into more far-flung areas they would have considered before. If people know that they’re going to be able to work remotely, they may move across the country, or move, you know, two hours away from wherever their office is. So, in that sense, I think that that would have a very profound impact on the housing market.

We already saw a wave of migration during 2020, and we may see even more waves of migration as more people figure out that they’re not going back to the office anytime soon. And another thing that could be impacted is mortgage rates. If this delays the economic recovery, then I would expect the Fed to keep interest rates low even longer, and that would keep mortgage rates lower and make home buying more affordable. And then, finally, another impact is that if people are unable to travel internationally, local vacation towns, domestic vacation towns, will continue to see really, really strong housing markets. There’ll be a big business for Airbnbs, for short-term rentals. There’ll be people who are looking to buy second homes for them to vacation to, or people who are just looking to relocate out of the city, to a more scenic area that will be really strong for vacation towns as well.

Alcynna Lloyd: So, you’re just saying you’ll essentially see demand will become once again a hot topic for our industry?

Daryl Fairweather: Yeah, I mean, I think that with the Delta variant, it won’t play out exactly the same way as it did before. I think since people can get vaccinated, they won’t be so concerned about living in an urban area. I think, actually, the homes that will be most desirable will be large homes that have, like, a home office, but also have lots of urban amenities. Because I think, I mean, I could be wrong. I think restaurants will stay open in most of America. Entertainment will stay open, especially if it’s outdoors, and people will still want to be around people if they themselves are vaccinated and feel safe enough to do those kinds of activities.

Alcynna Lloyd: I definitely see your point there. I know with the pandemic, people were just itching to get out of their houses, and since this will be a second round, people will probably understand a little more better how to navigate the market, or their local markets. So, Daryl, I want to end this conversation by discussing what you think home buyers or industry professionals need to keep an eye on as the market continues to transform. Do you have any insight into what factors need to be monitored, or any insight or information that we should be paying attention to?

Daryl Fairweather: Definitely pay attention to mortgage rates. I think one of the reasons the housing market remains as strong as it is is because mortgage rates are still very low. If those tick up, that would definitely change the trajectory of the housing market. And I would also pay attention to this return to work. How many offices are actually going to call people back? Because that will have very large impacts on local housing markets, whether it’s gonna be more desirable to live in the suburbs or a rural area, versus in the city core.

Alcynna Lloyd: Right. Well, Daryl, thank you so much for joining us today and answering my questions.

Daryl Fairweather: Thank you.