Impact of the Pandemic on the Housing Landscape in Vermont
Photo by Mika Baumeister
I was recently asked to be a presenter to Governor Scott’s Community Solutions and Local Recovery task force. A version of this detailed report was shared with many state and local leaders, including regional planning directors, leaders of non-profits, leaders of statewide businesses, and more.
Figured everyone else might be interested in it too.
First, These numbers are statewide, and come only from sales reported through the New England Real Estate Network (the MLS), and they reflect only Realtor-assisted transactions. They do not include FSBO data, as that data is VERY difficult to come by. The latest statistics, published by the National Association of Realtors, show that nationwide 89% of all sales are Realtor-assisted, so this should be representative.
Second, we’re not talking about SALES here, but rather CONTRACTS. This is so that we examine market conditions in the very near past. Similarly, we’re not talking about SALE PRICES, but LIST PRICES. It can take two months or longer for the close of escrow. Looking only at sale prices would only allow us to study buyer and seller behavior going back to April or May. Using Contracts, we can see what is happening through the end of July.
And last, these numbers are for single family homes (except one section about land). It’s not commercial or multi-family properties. However, it was not possible to determine if these are going to be owner-occupied, if they will be primary residences, if they were bought by people from out of state, or why buyers bought them.
Number of Single Family Homes AUC (Active Under Contract)
Looking at Jan-July over the past five years, the 2020 numbers aren’t unheard of. But they are significantly higher than we’ve seen since 2017. The 40% increase over Jan-July 2019 is remarkable.
Drilling down a little deeper, let’s talk about what happened month by month. Comparing to 2018 and 2019, January and February 2020 contracts were up almost 20%, signalling a busy market, with lots of activity. As Realtors, we were getting ready for a great spring market.
2020 looked exactly like the average of 2015-2019 for January and February, in terms of new contracts on single family homes in Vermont.
March and April saw significant decreases in the number of contracts. In May, enough ground was gained that we were in the exact place as we were the past few years.
But that steep growth curve just kept continuing. In June we were 58% ahead what we would have expected for a “normal” June. And in July we had 136% more contracts than a “typical” year.
The astronomic increase in the number of contracts in June-July coincided with a dramatic decrease in the number of new listings (homes that are newly available for sale).
January through March 2020 looked similar to the previous five years in terms of new listings. That curve is relatively flat, ranging from 1600 to 2300 new listings.
Again, the April-July period was starkly different, representing a 74% decrease compared to the five year average. See the graph below.
So, we had much fewer houses coming on the market for sale. And simultaneously we had many more houses going into contract for purchase. Supply and demand is doing what it does, and buyers are having a hard time finding houses. Multi-bid situations are very common, and we have a lot of frustrated home buyers.
Remember that when someone sells, they usually still need to live somewhere else. So the sellers who are happy to get multiple bids often experience the same frustration and friction when they try to buy their next house.
Sales by price range
I looked at contracts written across $50,000 intervals. Over the past three years, the number and the percentage of sales across different price ranges. Across the board, the activity appears consistent.
Until you get to properties listed at $1 million and above. Since 2015, those sales have been between .5% and 1.5% of each month’s sales (Jan-July). In June 2020, that moved to 2.2%, and in July a whopping 5.16% of contracts were for single family homes listed at more than $1,000,000. (43 out of 833).
Another way to look at the data is that since March, the percentage of million dollar contracts has increased by nearly 300% as compared to the previous five years. Again, without going through each town’s land records, it’s not possible to say where these buyers came from, or whether they are the buyers’ primary residences. Additionally, this market activity is unlikely to be spread evenly throughout the state.
The number of parcels of land that went into contract in the period Jan-Jul increased by roughly 65% in 2020 compared to the same period in 2015- 2019.
In 2015-2019, January through July, the average number of pieces of land that went under deposit was 649. In 2020, there were 1068. Without going to each town clerk and reviewing the property transfer tax returns, it’s impossible to say if these were bought by Vermonters or out of state residents, or if they were bought by people planning on moving here.
I also want to make clear that there’s no way of determining why there was this huge increase. There are infinite motivations. Those motivations have existed over the past five years as well. However, the Covid-19 pandemic has coincides very neatly with several huge changes in the Vermont real estate market.
Out of state buyers? The elephant in the room.
As a broker, nearly everyone I’ve talked with over the past few months has wanted to talk about out of state buyers. Everyone has a story, and there have been several articles full of anecdotes and one-offs used as examples to prove a point.
The only way to know with certainty is to go to the town clerk in each town in Vermont, and search through the Property Transfer Tax Returns, or alternatively, for each town to digitize or otherwise collate that data. Incidentally, digitization of land records would reduce the need for Realtors and attorneys to do in-person title research, perhaps reducing the chances for spreading viruses.
While we can’t say with certainty that there has been a surge in out of state buyers, we can say that since 2015, the average number of contracts from May-July has been 1087. In 2020, there were 1844 contracts, which is an increase of nearly 70%. This number is not explained by “pent up demand” of buyers deciding not to purchase in March and April.
Anecdotally, our office in Montpelier has not seen a “surge” in out of state buyers. We always have out of staters. Now, as in the past, they remain people who had been planning a move beforehand, are moving for work, to come back to be closer to family, etc.
But all of these new buyers are coming from somewhere. It could be that they are Vermonters buying second homes, or buying single family homes as investments. It could be that there is a surge in apartment vacancies as renters are deciding to buy. But clearly, the most logical reason appears to be that there has been significant out of state activity.
Further Observations and Questions
Internet access as critical
In March, when schools shut down, and people who could work from home had to work from home, it became very clear, very fast, that having reliable high speed internet was critical. We’ve heard the stories of the “digital divide” between those areas and those houses with these utilities, and those without. Often those stories describe, or allude to rural areas. Poorer areas, remote areas, and the “colder hollows” that The Eye on the Sky talks about. It’s important to remember that there are households across all income lines that either don’t have reliable cell service or high speed internet.
Lack of high speed internet is actually preventing some home sales. Many buyers are immediately dismissing houses that don’t have reliable high speed internet. Buyers are now very attuned to the present and future realities of working and schooling remotely, and are not settling for subpar internet. Gone are the days when buyers were satisfied with, “Yes, you can usually watch Netflix, except it’s a little spotty when there are clouds, or when other houses are already on.”
Now, they know they want (or need) the ability for each adult in the house, and each child in the house to be on a Zoom call at the same time. Our brokerage has started using “Zooms Per House” as an informal measurement of internet quality. And “one” or “zero” isn’t cutting it. This effectively decreases the value of property, as a direct result of the pandemic. This forfeiture of value (equity and net worth) affects the affluent who have second homes as well as the working class and poor whose only avenue for homeownership (or renting) was outside the areas with reliable, high speed internet. Property owners in communities and areas that have worse internet connectivity are going to pay a very real monetary penalty in terms of equity and when they sell their homes.
Housing Market as an Ecosystem
What will happen if the economy doesn’t recover? Will it be more difficult for purchasers in the lower ranges to qualify for loans? Will $150,000 starter homes be able to be sold? Those $150,000 sellers are the $250,000 buyers. Which free up the $350,000 buyers. But if the lower priced homes can’t sell, that will ripple through the housing market.
How Will Landlords Respond to the Effects of the Pandemic?
How will landlords respond? If economic uncertainty continues, or worsens, how will landlords weather non-payment of rents? Will they increase dependency on tenants with housing assistance to get what looks like guaranteed rent? Will they look to improve their units to attract higher income tenants (who are often information workers who can work remotely), and increasing rents?
Will this change the way people think about entering into nursing homes?
Will this change how people think of nursing homes and assisted living? If seniors are uncomfortable going into nursing homes, will they stay in their houses? How will they get the care that they need? Will that cause a choke point in the real estate market? Any choke point ultimately affects first time buyers.
We know that nursing home facilities are doing great work in providing safe, comfortable care for seniors. I would be interested in knowing if there are any changes in the number of people entering into nursing homes, since the pandemic began in March. If the number has declined, then where are these seniors living? Most likely still at home. If concerns over the safety of nursing homes exists (and/or continues), and seniors put off selling their homes, that could disrupt the “normal” cycle of home sales and apartment vacancies, decreasing the supply of housing at different price points.
Data shows us that contracts are at very high historical rates and that new inventory is coming on very slowly. Data shows us that the number and percent of million dollar homes going into contract is three times what it has been in recent years. Contracts for land have also spiked. It’s getting harder for everyone to be able to buy a house in Vermont. As with most troubles in this world, what is an annoying inconvenience to those at the top can be catastrophic to those at the bottom.
Buyers are focusing on internet access and cell coverage, which is a trend I firmly believe will continue long past the pandemic. Very few people in transactions seem to be concerned about what the near future will bring. Confidence and trust are very high, which is great for business. That also shows that people tacitly have faith that policy makers, business leaders, and community leaders can keep the economy, the housing market, communities and families and individuals strong and healthy.
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