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In the past year the average sales price of a home in the US increased 16%. In places like Boise and Austin, it was more than 30%.
This is astonishing, especially during what we still must consider a recession. Normally, home prices rise no more than 5% a year. The last time prices rose this fast was in the late 1970s, when general inflation was raging. Even during the 2005 bubble, the average price never rose more than 12%.
Higher home prices aren’t necessarily a bad thing: They spur new construction, provide business for realtors and mortgage companies, create construction loans and home equity loans for banks, and increase the wealth of homeowners , who in turn produce more spending that benefits the economy.
The problem with rising home prices comes when they rise too fast, when they reach levels that are out of synch with economic reality, after which they crash back to their original value or even lower. After the 2005 bubble, average home prices began a four year slide that left them 20% lower, bankrupting homeowners, home builders and bankers in the process.
How do we know that home prices are rising too fast? After all, there are good reasons why tech companies move to Boise, why people like the life-style of Austin, why Florida beckons folks from the north. The population of both Boise and Austin grew 3% last year; of course home prices there will rise.
But explain to me why home prices also increased 18% in Flint, Michigan, where the level of jobs is still 6% lower than before the pandemic, where unemployment remains high at 7%, and where the population has shrunk every year for the past decade.
And why did home prices rise at least 10% in almost all of the 300 largest markets in the country?
Something else is going on here and the problem is that many people are on the verge of making bad decisions based on the premise that the recent rise in home prices will both continue and be sustained. In fact, there is now a disconnect between the sales price of homes and their actual value.
It’s not hard to see how this could happen. In a typical market only one out of every 200 homes is sold every month. If a well-off city dweller is willing to over-pay during the pandemic to buy a home in the country, it looks as if all 200 homes are now worth more. But are they really?
Once a home price bubble starts, it’s momentum keeps it going even when the eventual outcome is clear. I expect that this bubble will continue another year, so if you’re flipping homes you might be in luck. But if you’re thinking of spending some of the increased value of your home, or you’re a banker making home equity loans, or an investor buying rental properties, you should consider carefully where home prices may come down again and by how much.
Investors are in the toughest spot because they need to immediately get a good return on whatever price they pay for a property. The easiest way to do this is to invest only in apartments, and especially those with an established income stream. The price of these properties should NOT increase with home prices; rents are limited by incomes. If a seller suggests you just raise the rents, or if that’s your own idea, be sure you know the rent profile of the local market: how many people pay how much rent right now. I’ll say more about this below.
In the long run, the value of homes is determined by income, even though short-term changes in demand can run into a limited supply of homes, driving prices up. One way to see whether the surge of prices in a market is justified is to compare price increases with increases in income.
The table shows for 24 markets how much home prices increased in the last three years, the increase in income and the ratio of the two. In those markets where the ratio is close to or over 2.0 I’m pretty sure there will eventually be a crash in prices.
The higher the ratio in a market, the more precautions investors must take to ensure they will be able to fill a property at the necessary rent, especially if that requires raising rents. That means knowing the rent profile of the local area, and in particular the rent range with the highest concentration of renters. If the rents you need are much above this “best” rent range, you will have serious difficulty finding renters, either now or in two years when the average renter moves on.
A home price bubble is an annoyance for homeowners who buy at the peak of the market, but unimportant if they continue to live there. It’s a worry for lenders, but they’ll only suffer losses if there are wholesale foreclosures. Investors, however, can be saddled with a poorly performing property for years if they pay more than the rents can return. They’re the ones who must analyze bubble markets with the greatest care.
One of the trends that emerged at the start of the pandemic was people doing more bulk shopping to reduce trips to the store. That led to a rush on chest freezers to store frozen food and to a desire for larger, more functional pantries in the frenzy of remodels that followed lockdowns. The latest trends study from the National Kitchen & Bath Association bears this out.
In its top five list of emerging kitchen ideas for the next three years is a “working pantry,” cited by 60% of the designers and industry professionals who responded to the survey. The pantry’s features should prioritize food storage and working areas for small appliances, including coffee centers, they said. These pantries should also include storage space for serving dishes, pots and pans. And they should have countertops for food preparation, including baking centers.
This doesn’t surprise senior editor Mitchell Parker, who watches what designers post and consumers save on the massive home improvement site Houzz.com. “For those who have the space, pantries are a great solution for people looking to organize.” Pantries help facilitate organization, creating storage and working space out of the kitchen’s sight lines and work aisles, he adds. These are still walk-in spaces or cabinetry-based configurations, but homeowners are equipping them with more sophisticated solutions like roll-outs, specialty organizers and deep drawers.
“Since the beginning of the pandemic, we’ve seen an increase in photos on Houzz that showcase themed storage, like baking, coffee prep or snack stations for the kids, which allows family members to come into the kitchen for specific reasons without interrupting the cook’s flow.
Beverage refrigerators are another example of this,” Parker adds. “They can give family members and guests access to cold drinks away from the main refrigerator and the chef who’s preparing a meal in the kitchen. Nearly one in five renovating homeowners incorporates a beverage refrigerator, up by 5% from last year.”
Portland, Oregon-based certified master kitchen and bath designer Robin Fisher is seeing her clients also use their pantries for wine storage and keeping food they’ve canned at home, she comments. When meeting with new clients, she asks how they shop and plan their meals, how they entertain, how far they live from their grocery store and what their sustainability priorities include. “I have a client conversation about food waste and sizes of pantries. I try very hard to make the pantry the correct size for the client and fully accessible so that they see everything, and everything is used before its expiration date,” she shares. All of their responses, along with her professional observations about their home’s available space, contribute to how and where she’ll design their pantry spaces.
Health-focused private chef James Barry, CEO of seasonings brand Pluck, also prioritizes quick, easy access in his pantry space. “I want everything to be visible. So pantry door shelves are a plus. The deeper the shelf, the harder it is to see everything,” he observes. “If the shelf is wide and deep, a rack that elevates or tiers the pantry items is great.”
The chef keeps his spices and cooking tools close to the work zones where he’s using them, he says, and has his pantry hold gear he uses less. “Small appliance storage is ideal, even larger appliances that are infrequently used. I’m on the fence about built-in appliances in the pantry.” He notes that they’re harder to clean in tighter quarters. “When I look at a kitchen space, I don’t just look at aesthetics, but practicalities.”
Fisher likes these storage zones to be sited for peak convenience. “I believe that the pantry should be located in the perimeter of the kitchen. You get what you need, then bring it to the cooking center to cook.”
Parker agrees: “When drawing up plans for a new or renovated kitchen, most designers on Houzz try to place a pantry in the handiest location for the homeowner, within steps of the primary kitchen work zones,” the editor notes. “For that reason, some of the best cabinet pantries are located next to the fridge, sink or range.” Homes with large kitchens might even have multiple pantries. “If that’s the case,” Parker suggests, “it’s important to develop a well-thought out plan for food organization so that related items are grouped together.”
He notes that “Some homeowners opt to include a butler’s pass to their walk-in pantry, which include microwaves and prep sinks in order to be used as a serving station. In those instances, the pantry should be accessible to the dining room, but out of the way of the kitchen’s primary cooking functions.”
When a pantry is to include working appliances, like the freezers and wine fridges Fisher includes, and the coffee makers cited by NKBA and Houzz designers, they also need power sources. Microwaves, which have recently started trending away from kitchen to pantry placement, also require power. When pantries have sinks, as Parker mentions, the designer also needs to factor in a water source and drainage. These all add cost to the remodel, but functionality and value to the kitchen and home too.
If he had his druthers, Barry’s home would have a walk-in pantry, he says, and he would convert a kitchen utility closet to a supplemental food pantry. Bigger isn’t necessarily better though, the chef cautions. “We tend to treat our pantries like they’re storage units. A small, well-organized pantry will make cooking simpler and less stressful. Even though that bulk buy of tomato paste may be five cents less, do you really need 12 cans of it in your pantry? Stick to smaller quantities with a higher turnover. You’ll not only be more efficient with what you buy, but your food items will be fresher.”
He organizes his own pantry according to need. “Items rarely used are on the top shelf. Items frequently used on the bottom shelf. I have dried pastas in the middle on one side. Cans organized by type on the other. I keep baking items together on the same shelf and oils and vinegars together on an easily accessible lower sheIf.”
Because Barry can easily see what’s in his pantry with shallow shelves and an organizing plan, he can keep his food fresher, he notes. “I’m someone that will build a meal based on what I have in the cabinet just to get rid of it. Lentils from six months ago? No problem, tonight we’re having lentil soup for dinner.”
Whatever you’re making for dinner, having a pantry optimized for efficient meal prep, whether large or small, can get food to your table faster and with less stress.
Author’s Note: Barry, Fisher and Parker will be participating in a Clubhouse conversation on Wednesday, January 19 at 4 pm Eastern (1 PM Pacific) to discuss pantry tips and trends, and answer participant questions. This session is open to everyone. Those who miss the live event can find a recording the following Wednesday on the Gold Notes blog.
Analysts expect domestic battery production to quadruple by 2025. Site selectors and economic development experts suggest Central Texas stands to be a landing spot for such projects — in fact, the Greater Austin Chamber of Commerce already counts dozens of those kinds of projects being floated in the region.
The most expensive home in Brooklyn is going on the market today. High atop Olympia, a dramatic new 33-story residential building located at 30 Front Street in Dumbo, is a 4,928 square foot, five bedroom, four and one-half bath penthouse with 552 square feet of outdoor space. Penthouse B is listed at $19.5 million.
Dumbo is an acronym for Down Under the Manhattan Bridge Overpass. The name for the neighborhood was coined in 1978, when new residents thought that such an unattractive name would help deter developers. In fact, Dumbo today is a supremely desirable place to live, a hotbed of dining, recreation and shopping, with a vibrant urban community, highly regarded public schools, and New York City’s highest concentration of technology firms by neighborhood. An added bonus: Dumbo’s spectacular views of the lower Manhattan skyline.
Olympia has been rising for several years atop a high point between the Brooklyn and Manhattan Bridges. Designed by Hill West Architects, it torques like a sail atop a simple, rectangular base. The building will offer 76 homes, many with terraces oriented toward the view.
“We expect to see buildings like this is in Manhattan,” says Fredrik Eklund of Douglas Elliman. Eklund, a Swedish New York City-based real estate broker, TV reality star and the author of The Sell, represents the project’s sales and marketing in collaboration with The Heyman Team at Sotheby’s International Realty.
“When we think of luxury high-rises, we think of Manhattan. Before Olympia was built, we never saw anything like this in Brooklyn.”
Included in the building’s 38,000 square feet of indoor and outdoor amenities are three swimming pools, including several lap pools, treatment rooms, spas, a two-lane bowling alley and a regulation-sized tennis court overlooking the Brooklyn Bridge. A children’s playground is designed around a nautical theme, as befits the neighborhood’s history. The building’s fitness center, which is close to the playground, includes a spin studio, workout rooms, boxing gym and lounge.
Penthouse B is the crown jewel of the building, the only unit with direct, private elevator access.
“And, unlike most large New York City homes, this is all located on one single floor,” says Karen Heyman, a director of sales and leader of the Heyman Team at Sotheby’s International Realty. “Many large units in the city are duplexes and triplexes. and, although there is nothing wrong with flights of stairs, it is so convenient and easy to have all the rooms on one level.”
The interior designed by the AD100 firm Workstead features seven and 3/4″ wide plank light ash wood flooring. Top-of-the-line Gaggenau appliances share the kitchen with white maple cabinets with satin nickel hardware. Bathrooms boast soaking tubs, stone counters, maple vanities and signature Workstead elements like chamfered edges along countertops.
In the city, private outdoor space is always at a premium, a fact that has increased exponentially during Covid lockdowns. The wide terrace is spacious enough for an outdoor dining room, lounge chairs, sofas and garden plants, all against the incomparable backdrop of the Mahattan skyline.
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