Even economists buy and sell houses.
Brian Albrecht, chief economist at the International Center for Law and Economics, and his wife bought a piece of land without seeing it over the weekend and sold their house within a week.
“We rushed to put our house on the market,” said Albrecht, who sold a rural Minnesota home on the St. Croix River as mortgage rates approached 6% in June, three percentage points from more than at the end of last year. .
Buying a house was also a race. The family visited their future home via FaceTime from Georgia where Albrecht, an assistant professor currently on leave, teaches economics at Kennesaw State University. The house, in a northeast suburb of St. Paul near White Bear Lake, is closer to amenities like daycare and preschool.
In addition to his work at the International Center for Law and Economics, Albrecht publishes a newsletter with University of Mississippi economist Josh Hendrickson titled Economic forces. They write about how supply and demand affect prices in different markets.
Albrecht spoke with Barrons about his experience as a home buyer and seller, as well as his view of the market. An edited version of our conversations follows.
Barons: How did you experience buying a house? How quickly did you make an offer for your new home?
Brian Albrecht: We visited four houses, made offers on two and the second was accepted.
The house was on the market Friday morning. They took offers throughout the weekend and did tours on Friday, Saturday and Sunday. All offers had to be received by Sunday evening and they made the decision on Monday morning. This was also true for the other three houses we visited.
There was back and forth with the other realtor over other offers, but we didn’t end up in a bidding war in the sense of coming back with a higher price. We waived our inspection, which effectively gives a better deal.
How does your offer compare to the listing price?
We went way over the listing price – $53,000 more. The list price is not what worries you as a buyer; you worry about the competition. I am not competing with the list price. I compete with other people trying to buy. What matters is what I think others will bid.
I wrote a newsletter article titled “Supply does not exist“about that. It’s a group of buyers bidding against each other. If someone came to my house and offered me a million dollars, my family would be out of here in a day.
Do readers of your newsletter ask questions about the housing market?
I get questions about the big markets that people are concerned about—gas, interest rates, housing. It’s definitely one of those things on people’s minds. Everyone knows someone who has tried to buy a house and failed. People care about housing because it’s such an important part of their lives.
How was your sales process? How long did you expect the process to take?
We were optimistic. Every house we heard about sold very quickly. We knew our situation was different because we were rural. A lot of the real extreme housing market stories we heard about were about cities or suburbs, or newly built homes. It was a 1950s house in the woods; it wasn’t San Francisco.
We thought it would last about a weekend and then we would accept an offer. It ended up taking a few more days as things got cold. We were aggressive on the list price and two bids were under about $25,000. Two is not a ton of offers.
But within a week, we had listed and accepted an offer. It wasn’t as tight as when purchased, but in the scheme of things, still very, very tight. Many houses are still under contract within two weeks, which is a big change from when we bought the house in 2019.
[Editor’s note: Redfin data show that the percentage of sellers who accepted an offer within the first two weeks of putting their home on the market was 56% in May and 41% in July. That figure was around 30% for much of 2019.]
Your new home is in an urban area. What is the state of the market in metropolitan areas?
Prices rebounded as people returned to cities after leaving earlier during the Covid-19 pandemic. At the margin, the advantage of being in the suburbs or in a rural area [during economic lockdowns] was higher than being in the city. Without restaurants or nightlife, New York is no longer the same.
In the long term, supply will have to respond – people will have to build more homes. But it is difficult to build in cities, especially in cities where there are many zoning regulations. These regulations make it difficult, if not impossible, to build additional housing.
And by housing, I mean the ability to house more people. Turning a single-family home into an eight-person apartment complex means building more housing because you would have more units for people. Doing this is illegal in many cities.
Mortgage rates have climbed much higher than a year ago. What did it do to the market?
Every time interest rates rise, demand stifles, and that’s what we’ve seen over the past few months. [Editor’s note: The seasonally adjusted annual rate of existing-home sales has fallen from 6.5 million in January to 5.1 million in June.]
[Rising mortgage rates] were one of the reasons we rushed to put our home on the market. What seems like a small increase can have a big impact on mortgage payments.
If the US economy goes into recession, what would that mean for the housing market?
The possibility of a recession will lower demand. Are you going to want to pay a bigger mortgage if you’re worried about losing your job in six months? If you’re worried about a recession coming, you might just wait for the upgrade [to a bigger home]. Any general uncertainty about things will drive down demand.
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