If you're a homeowner or real estate enthusiast, you've likely heard about the recent "Zillow Gone Wild" phenomenon. This isn't about the popular real estate website suddenly shifting towards eccentric listings, but rather a real-life trend of home prices skyrocketing due to peculiar market conditions exacerbated by the COVID-19 pandemic. But don't worry, real estate experts assure, this "wild" ride won't last forever. In many markets, we're seeing signs of a return to more stable terrain, a phenomenon we might call "Zillow Gone Wild Restore".
Before delving into the restoration phase, let's recap what made Zillow "go wild". The pandemic sparked a surge in remote work, leading to an exodus from dense cities to suburban and rural areas. Coupled with record-low mortgage rates, this drove up demand and sent home prices soaring. Meanwhile, construction and supply chain delays constricted the supply of new homes. The result? Bidding wars, houses selling for well above asking price, and listings disappearing from Zillow in mere hours.
The End of the Wild Ride: Signs of Cooling
But as the world adapts to the new normal, signs indicate that the "wild" real estate ride might be nearing its end. The share of homes selling above list price has begun to decline. For instance, in July 2021, the percentage of homes selling above list price was down to 56% compared to 68% in January.
Furthermore, inventory levels are gradually increasing. While still low, the number of homes for sale has been rising since the beginning of the year. This increased supply, coupled with a potential cooling of demand, could signal a return to a more balanced market.
Shifting Demands: An End to Pandemic-driven Migration?
One reason for the cooling could be a shift in buyer preferences. As vaccination rates rise and offices reopen, more people may choose to remain in or return to urban areas. This could lead to reduced demand in suburban and rural markets, easing the pressure on prices in these regions.
Moreover, many companies have announced permanent remote work policies or plans to adopt a hybrid model. This could mean that the initial exodus from cities might not resume, potentially easing the demand-driven price increases.
Mortgage Rates Creep Up: An Impact on Buying Power
Another factor contributing to the "restore" phase could be the slow but steady increase in mortgage rates. After hovering around record lows for most of 2020 and 2021, rates have started to creep up. While still historically low, these increases could potentially put homeownership out of reach for some buyers, reducing demand and cooling prices.
Additionally, the Federal Reserve has hinted at tapering its bond-buying program, which has kept long-term interest rates low. This could further drive up mortgage rates, making homes less affordable and potentially causing demand to cool.
Bracing for the New Normal: What to Expect
The "wild" phase of the real estate market was unlike anything seen before. However, as we move towards restoration, we can expect to see a more typical, albeit not entirely "normal", market.
Buyers and sellers should prepare for a market that's not as fast-paced or frenzied as the recent past. With more inventory, buyers may have more options to choose from and could take their time. Conversely, sellers may need to be more patient and potentially accept offers closer to their asking price.
The 'New Normal': A Shift Towards Balance
Rather than a rapid return to pre-pandemic conditions, we're likely to see a 'new normal' that hues closer to the balanced market we saw in the years leading up to the pandemic. This could mean more moderate home price appreciation, with affordability restored in some previously red-hot markets.
However, it's essential to note that this 'new normal' could also vary significantly across different regions. While some markets may see a return to balance, others may remain favorably sunny for sellers due to persistent demand or supply constraints.
The real estate market's evolution from "Zillow Gone Wild" to "Zillow Gone Wild Restore" signals a return to a more predictable, balanced environment. While the future remains uncertain, understanding these trends can help buyers, sellers, and real estate professionals navigate with confidence. As such, it's crucial to stay informed and adaptable in this ever-evolving market landscape.