David Shelton, a Sioux Falls broker with Century 21, got into real estate in the 1990s. But he’s never seen anything like this.
A global pandemic, plus rock-bottom interest rates, are sending supercharged demand into residential markets around the country. In Sioux Falls, houses are up for sale for just a few days — maybe two or three — before sellers start counting their offers. Buyers are sweetening deals by waiving appraisals and inspections. Shelton’s heard the same stories out of Colorado and Minnesota, too.
“I think what we’re seeing is many people are fleeing to real estate as a safe haven, even for their investments,” Shelton said.
Whatever storm of pandemic conditions are behind it, the numbers show a steady rise in prices. According to the National Association of Realtors, Sioux Falls-area homes saw the median sales price grow more than 8% from the end of 2019 to the end of 2020, from about $223,500 to nearly $242,000. And Shelton has been right in the middle of it.
“This is an unprecedented time,” Shelton said.
Those same price hikes are showing up around the country. In the Fargo area, prices have jumped just below 8%. In Bismarck, prices are up nearly 5%. In the Twin Cities area, though, prices are up by more than a whopping 12.6%.
Erik Hatch is the owner of the Fargo-based Hatch Realty. His take is pragmatic: why stay in a cloistered space in a pandemic? In apartments especially, things can feel crowded.
“The noises are louder, the hallways feel smaller, the germs feel more abundant. And you find yourself in a place and — ‘I don’t want to continue living like this,’” Hatch said. Or, he added, take a family that’s had to shoehorn a home gym and home schooling into an already full house. “All of a sudden the space that you’ve had doesn’t feel like it’s necessarily sufficient enough.”
The sudden rush into real estate has sent ripples through adjacent markets. Lenders are suddenly hit with a rush of demand for new loans and refinancing. Building materials, snagged up in pandemic restrictions and hunger for home construction, have been harder to find.
Kim Settel is the executive vice president of retail banking and lending at Gate City Bank. She recalls significant demand throughout the pandemic — as interest rates fell, homeowners were interested in refinancing their loans. Then, as demand for home purchases picked up, new mortgages started coming in. All this amid managing their workforce amid a pandemic.
“Adaptability was the word of 2020, and it continues to cascade into 2021,” Settel said, describing “exponential growth” in the company’s real estate lending and refinancing.
The pandemic has also meant changes in commercial real estate — though those shifts have moved in the opposite direction. Suddenly, the pandemic has sent everyone home from the office, and corporations are starting to find that, maybe, they don’t even need an office anymore.
Statistics from Cushman and Wakefield, the Chicago real estate services firm, show a big bump in available office space around the country in the fourth quarter of 2020. In Minneapolis, that figure comes to 578,000 square feet; in other places, like Chicago, it soared into the millions.
That’s no surprise to Joe Hockett, the business development manager at RCS Construction in Rapid City, S.D. There’s lots of construction work to be done — from a wastewater treatment plant in Wyoming to a credit union right there in town — but not so much on office space.
“That's a national trend, because a lot of companies suddenly realized how many of their employees can work remotely,” he said. “Commercial office space, what's existing is not selling super-quickly, but it's also, for a company like us, we're not being approached to build office space."
So what’s next for markets? For the commercial side, it’s hard to say precisely how much of the market rebounds. On the residential side, Hatch downplays concerns of a bubble bursting. In Fargo-Moorhead, he said, local measurements of price growth show lower growth rates than NAR data implies — as low as 5.53%.
“Selling a home under $300,000 and buying a home over $300,000 (is) really in a sweet spot unlike anything we’ve ever seen,” Hatch said.