The COVID-19 pandemic has been good for the real estate market. Consumers have become homebound over the past half-year or so, and perhaps unsurprisingly, many have a renewed focus on ensuring their home is right for them.
Meanwhile, millennial consumers have drastically picked up the pace of their home buying. They’re aided by digital tools that make it easier to find a home, take a virtual tour, arrange financing, place an offer and close a deal – all from the comfort of their living rooms.
Affluent urbanites are also suddenly realizing the benefit of having a second home in a picturesque rural location, investing in places like Lake Tahoe, Vail and Martha’s Vineyard as acceptable settings in which to ride out the pandemic period. And many white-collar employees who are working remotely from home are realizing they need dedicated home offices, more square footage and floor plans that are a lot less open and involve more walls and doors.
Pushed by all of that suddenly exploding demand, the real estate market (particularly the digital retail market) has been booming.
For instance, online real estate giant Zillow Group Inc. reported its largest quarterly profit on record on Thursday (Nov. 5). In fact, it was the company’s first quarterly profit at all in the last three years. Zillow reported earnings of 39 cents a share, up from an adjusted loss of 12 cents a share a year ago and more than triple analysts’ expectations.
In his letter to shareholders, Zillow CEO Rich Barton noted that buyers are using Zillow more than ever as homes fulfill a wider swath of buyer needs. He pointed to rising consumer interest in moving, combined with better tech tools to help them find homes.
“We believe these tailwinds are durable, supported by low interest rates and demographic shifts as millennials age into their prime home-buying years, with Gen-Zs lining up behind them,” Barton wrote. “Also, continued investment in technology is enabling people to do more of their shopping and transacting online. As a leading digital real estate company, we are well-positioned to serve our customers and partners — both now and in the future.”
Redfin CEO Glenn Kelman shared similar sentiments when his company reported earnings last month. He noted that Redfin is seeing demand from buyers spike up “faster than we can recruit agents, lenders and partners.”
Kelman also talked up Redfin’s expanding digital capabilities, including virtual tours and video appointments with agents. He said Redfin conducted more than 20,000 video tours last quarter, with video comprising about 9 percent of all tour requests.
“It has taken us more than a decade to build the technology and the vast network of local agents to let people tour almost any home for sale in almost any town in America, virtually or in person,” Kelman said. “This capability was a convenience for people still likely to use a traditional agent for a cross-town move. But for the millions of Americans now free to move anywhere in the country, that little Redfin touring button on their cell-phone screen has become the passport to a new life.”
A passport that, by the numbers, an increasing number of consumers are getting stamped. Existing home sales were up 9.4 percent in September compared to August and up more than 20 percent year on year, according to data from the National Association of Realtors.
Median home prices are also increasing, up almost 15 percent annually last month to hit a record $311,800. All in, U.S. homeowners have gained $2 trillion in home value this year, according to data from Redfin.
But will the good times keep on coming within the real estate market? Some experts aren’t so sure, according to Wall Street Journal reporting.
While both Zillow and Redfin argue that the real estate boom has legs, figures from SimilarWeb indicate that home searches on both Redfin and Zillow peaked in mid-August and have since declined. Zillow’s own data indicate that growth in newly pending sales has slowed 4.5 percentage points since early September.
Part of the problem, it seems, is that buyer enthusiasm has reduced the supply of available homes, driving up prices. Active listings fell by 30 percent last month, according to Redfin, pushing home prices up by 14 percent. That’s the biggest annual increase for any month since at least 2012. High prices have a long, glorious history of pushing away even motivated home buyers.
Still, the U.S. housing market may well be heading toward the “great reshuffling” that Zillow’s Rich Barton alluded to in his comments to investors. That could keep consumers retaining and expanding their housing needs over the next few years, and looking to buy into new locations.
But in the short term, the market is heading into a winter filled with uncertainty and a falling number of available houses in many places. Real estate has been hot since pre-COVID days – and red hot in recent months – but could hit a cooling-off period this winter as supply and demand continue to resolve.