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Feeding Frenzy

Cheryl Malandrinos says the pandemic changed

Cheryl Malandrinos says the pandemic changed how people look at how they work and where they live, sparking greater demand for homes in Western Mass.

“A $180,000 house going for $275,000 … it can’t continue this way, or else the average homeowner won’t be able to afford a mortgage, and then the market will have to stabilize.” That’s a quote from a Realtor who spoke with BusinessWest last January about the low supply and high prices of homes in Western Mass. A year later, the situation has, simply put, not stabilized, with the region remaining an in-demand destination for remote workers and new housing stock still lagging. For potential buyers, it’s a situation that demands patience — and, again, hope for a correction down the road.

In her 25 years as a Realtor, Nancy Hamel has never seen anything like it.

Looking back at 174 houses sold in Amherst last year, 63 sold for more than $500,000, said Hamel, who is a top-producing agent with Jones Group Realtors. “That’s crazy. For years, we just had a handful sell for over $500,000.”

She rattled off some actual examples: a home with an asking price of $410,000 going for $511,000. A $595,000 listing selling for $675,000. A $649,000 listing topping out at $740,000. “It could just be underpriced, or it could be it rang all the right bells.”

Mostly, though, it’s supply — and that’s an issue in residential real estate that has pushed home prices into the stratosphere.

“Supply has just been very strange,” said Amy Hamel, Nancy’s daughter and partner on her team at Jones — and someone who, unlike Nancy, focuses primarily on the buyers’ side. It can be hugely frustrating.

“Lack of inventory has played a role in people panicking to find suitable housing,” Amy continued. “More people are able to work remotely now because a lot of companies decided to do that long-term because it’s worked so well. They’re saying, ‘why have communal space when we’re doing the same amount of revenue, or more, having employees work from home?’”

As a result, buyers have flocked to Western Mass. — and other attractive regions of the U.S. when it comes to quality of life — and the existing housing stock is not sufficient to meet demand.

“We see a lot of people moving here from all over — from New York, or from out west, Arizona, New Mexico. People are picking a place on a map, and Amherst is definitely a top place for people to come to,” she explained. “So prices are going up more than I could have ever imagined. Money is coming in from all over the place.”

“When it comes from high-home-value regions like California, where a half-million doesn’t seem as expensive for a home, that drives up prices for locals, for whom that is an intimidating chunk of change,” Amy said. “What they’re paying beyond the asking price is unlike anything I’ve seen in my 15 years.

“A lot of people are saying it’s been the best year for Realtors,” she went on. “Not really, unless you’re a top listing agent. Working on the buying-agent side has been very frustrating. I’ve had a lot of buyers put in many, many different offers before they found something, and still I have a lot of buyers laboring because they’re being outbid. And it’s not like they haven’t put in strong offers.”

Nancy noted that her daughter lost out on $14 million in offers last year. “She just got outbid — by people with cash, people offering $50,000 over asking price and still not getting it.”

“A lot of people are saying it’s been the best year for Realtors. Not really, unless you’re a top listing agent. Working on the buying-agent side has been very frustrating.”

She took one buyer from California on a virtual tour over FaceTime, who made an offer immediately, and well over asking price.

That’s great for sellers and listing agents, she admits, “but I’m having concerns. What are working people going to do? If you haven’t made money in real estate, it’s very hard to buy in now.”

Locally, in her Amherst-area market, “it could affect people who apply to UMass because professors don’t want to live far away and teach; they want to live in a 20-mile radius,” she noted. “But South Hadley’s expensive, Belchertown’s exploding, Hadley … forget it, and Northampton’s out of sight.”

The pricing has forced some creativity, to say the least, Nancy said. “People are waiving inspections; that’s scary to me. And I’m seeing an awful lot of parents step up to the plate and help. They say, ‘I’d rather help my kids when my eyes are open, rather than having them get it when I’m gone, and I don’t get to see the joy.’

Amy (left) and Nancy Hamel say they’ve never seen home prices where they are now

Amy (left) and Nancy Hamel say they’ve never seen home prices where they are now, sometimes selling close to $100,000 over the asking price.

“I’m grateful — we’re lucky to be a listing agency,” she went on. “But a lot of my colleagues are disappointed they’re in this feeding frenzy. If they’re new and working with buyers, it’s a lot of work to place an offer — a lot of paperwork, disclosures, everyone has to sign, get pre-approval … to do all that work just to be disappointed. The feeding frenzy is just cuckoo.”

 

Shifting Sands

Cheryl Malandrinos, president of the Realtor Assoc. of Pioneer Valley (RAPV), said the pandemic caused people to look differently at how they work and, in turn, where they live.

“They decided they didn’t really need to live as close to their offices if they were going to be able to stay remote for the time being. So we’ve definitely seen a shift here,” she told BusinessWest. “We did see buyers from the outside area, from other states, come into the Valley as well. So we continue to struggle with low inventory and rising prices throughout. The reality is, we haven’t been able to produce housing for quite some time. That has not helped us any.”

At the end of 2021, inventory in the region was 30% down when compared to December 2020, and prices rose about 15.4%, on average, over that same time period — which is remarkable, considering that articles like this one — discussing the same issues of a supply crunch and high selling prices — were being written a year ago, too.

One issue is that Millennials are increasingly entering the market, and they’re looking for affordable homes. “The reality is 41% of total buyers are first-time homebuyers, so entry-level homes are high demand,” Malandrinos said, and those homes aren’t being built at the rate buyers demand — especially during a lumber shortage. “It’s hard to build that first-time-homebuyer, entry-level home and make it affordable.”

“A lot of my colleagues are disappointed they’re in this feeding frenzy.”

For that reason and others, she said, Realtors and economists expect demand to continue to soar in 2022, especially with the prospect of the Fed raising interest rates. “Buyers will keep us busy in the winter season, looking for homes and hoping to secure them while the rates are still historically low, which gives them more purchasing power.”

Last year, the median price of an existing single-family home nationally jumped to an all-time high of $357,900, up 23% from 2020, according to the National Assoc. of Realtors (NAR).

“Supply-chain disruptions for building new homes and labor shortages have hindered bringing more inventory to the market,” said Lawrence Yun, NAR’s chief economist. “Therefore, housing prices continue to march higher due to the near record-low supply levels.”

Yun noted that inflation and the pace of price appreciation is expected to subside next year. At NAR’s recent Real Estate Forecast Summit, economists and housing experts agreed that inflation would likely ease in 2022 at a 4% rate, while home prices are expected to rise at a moderate pace of 5.7%.

So what does that mean for buyers? “You have to be prepared because you’re going to face a fair amount of competition in the marketplace,” Malandrinos said. “Gone are the days when you could find something and, a few days later, think about talking to a lender.

“You need to be prepared right away — engaging a Realtor as soon as possible, getting pre-approved, so you’re all set once you find what you want, because you’re not going to have time to second-guess it,” she continued. “You have to move forward with a strong offer. We’re still most likely going to see things selling over asking price, with multiple offers on properties that are well-priced.”

At the end of 2021, listings lingered on the market 22 days on average, but that number is skewed by a few outliers. “In reality, many properties are leaving the market before that.”

What she doesn’t recommend is acting out of panic — for instance, by waiving inspections. “I’m not one, in good conscience, to recommend that. Maybe you’re saying, ‘I want to hold off my inspection and reserve the right to withdraw, but don’t expect you to do any repairs.’ That’s also a way to get around that.”

 

Street-level View

Nancy Hamil has seen downtown Amherst values rise to 20% higher than similar properties in other neighborhoods, and one factor might be that migration into Western Mass. from people in urban centers who still want to live near amenities.

Lawrence Yun

“Supply-chain disruptions for building new homes and labor shortages have hindered bringing more inventory to the market. Therefore, housing prices continue to march higher due to the near record-low supply levels.”

“People covet living in downtown Amherst; they love to be able to walk places. Northampton is the same,” she said, noting that apartment rents are also on the rise, again impacted by supply and demand, and people priced out of the home-buying market needing a place to live.

“I do think affordable housing needs to stabilize to some extent because prices have gone a little beyond where I thought they would be in our area,” Amy Hamel added. “I do wonder what this year is going to be like. There are many factors that play into the market, and especially with COVID still running rampant, it’s going to be interesting to see how this year plays out.”

The pandemic did change the way homes are shown, Malandrinos said, with 2020 givijg rise to virtual tours using 360-degree videography.”

“That stayed with us and likely will continue, as it makes everyone feel safer,” she said, while noting that in-person tours are still common, though some sellers are leaning more toward open houses instead of many individual showings.

“Some people are still concerned about safety, so you have to work with your Realtor and make a plan that makes sense for you,” she noted. “Often, properties come on the market, and Realtors defer showings and have many people come in at once instead of private showings.”

It’s not unusual, she added, for those tours to have a set layout, with interested buyers entering by one door, following a path, and leaving by a different door. “As we go back to in-person showings, we’re trying to keep it as normal as possible, but as safe as possible, too.”

She pointed to the state’s Housing Choice Initiative, created a few years ago to incentivize communities to build more housing stock, as one way to increase supply.

“I really hope for a market correction so more people can afford to come into the market,” Nancy Hamel said. “I remember, when I was young, we didn’t require these huge down payments, and a house cost $50,000. Home ownership shouldn’t be only for the wealthy.”

Malandrinos agreed. “Buyers are tired,” she said. “It’s not unusual to hear, ‘my buyer lost out on their third property.’ Everyone benefits when there’s more equity in the market. I hope we get there, but we’re not there yet.”

There’s only so much comfort those words bring to people who feel they’re priced out of the kind of home they want in Western Mass.

“It’s easy for people to get frustrated, but stick with it. There is a property for you,” she added. “You need to be confident and come in with a strong offer you’re comfortable with — and hang tight.”

 

Joseph Bednar can be reached at [email protected]

Banking and Financial Services

Developments of Interest

By Mark Morris

John Howland calls the recent flood of deposits an “unprecedented” situation.

John Howland calls the recent flood of deposits an “unprecedented” situation.

John Howland admits that the word ‘unprecedented’ is overused these days. But for him and others in the banking business, it seems like the right word to describe all that’s going on.

Howland, president and CEO of Greenfield Savings Bank, was talking specifically about the record amounts of deposits flooding into banks — and what’s happening with those deposits, or not happening, as the case may be.

In the early months of the pandemic, from January to June of 2020, banks in the U.S. saw a surge of nearly $2 trillion in deposits. At that time, most people were staying close to home and had reduced their spending to necessities.

As a local example, PeoplesBank reported deposit increases of 33% since last April, or nearly $700 million in additional deposits.

More deposits arrived as businesses applied for Paycheck Protection Program (PPP) loans and consumers received stimulus checks from the government. During normal times, money gets deposited but does not stay in an account for long. These days, however, deposits are staying and growing to an extent Howland and his counterparts in Western Mass. have never seen before.

And while record deposits would seem like a good thing, all that cash is sitting still, for the most part, and the key to any bank generating revenue and earning profits is loaning its deposits out to borrowers.

“I never thought I would say there are too many deposits and not enough people to lend the money to,” said Tony Worden, president and chief operating officer of Greenfield Cooperative Bank. “The point of our business is to get deposits … so this goes against everything we were taught.”

In normal times, banks take in deposits and lend that money out to businesses and individuals. Balancing the number of loans to deposits helps determine what interest rates will be paid to savers and charged to borrowers. Banks profit on the difference between the two.

“I never thought I would say there are too many deposits and not enough people to lend the money to. The point of our business is to get deposits … so this goes against everything we were taught.”

But these are certainly not normal times. These days, banks have record deposits and diminished loan demand — for several reasons, which we’ll get into later — which translates to lower interest rates for savers and borrowers, as well as lower profits for banks.

Howland pointed out that the lower interest rates are great news for people looking for a business loan or a mortgage.

“The residential and commercial rates are down to levels that were inconceivable 10 years ago,” he said, adding that, moving forward, banks will be competing much harder to entice people to borrow money than deposit it.

 

By All Accounts

There are many theories as to why deposits have soared at area banks — and why those deposits are going largely untouched.

Dan Moriarty, president and CEO of Monson Savings Bank, suggested that once people tightened their spending during the pandemic, they may have changed their overall spending patterns, which is in many ways good for consumers, but not for the overall economy.

“It’s good for consumers to increase their savings and their capacity to have money, but it also slows down the economy,” Moriarty told BusinessWest. “We believe there is still some pent-up rebound spending by both consumers and businesses that we will be seeing.”

Howland agreed, noting that there are a number of reasons contributing to the surge in deposits, with one of them bring what he called a “flight to quality.”

“With all the uncertainty in the world, people understand that putting their money into a bank where their deposits are insured by the FDIC is one of the safest moves you can make,” he said, adding that, despite the consistently upward movement of the stock markets, many consumers are seeking a safe harbor in which to park their money.

Tony Worden says he never expected there to be too many deposits and not enough people to lend to.

Tony Worden says he never expected there to be too many deposits and not enough people to lend to.

As for the business of converting those deposits into loans — and revenue — many of those same factors are holding some consumers back from borrowing, said those we spoke with, although many have pressed ahead with purchases of new cars, new homes, and vacation homes.

Meanwhile, a number of businesses, still struggling to fully recover from the pandemic, are being cautious about moving ahead with expansions or new ventures. And for those that have the confidence to move forward, the current workforce crisis is keeping them from doing so.

Indeed, Worden said the current labor market is affecting activity in commercial lending. “We have businesses that can’t take on all the jobs they want because they don’t have enough staff to get them done.”

Moriarty agreed, but spoke optimistically about the prospects for improvement when people return to the workforce in large numbers. “Once our businesses can hire the staff they need and expand their products and services, they may look to the banks to borrow and grow.”

The surge in deposits and frustrating inability to put much of them to work has been one of many stories to unfold during what has been a challenging — and very different — year for area banks.

They all played a key role in helping businesses apply for PPP loans when they became available last spring. During two rounds of PPP loan offerings, Moriarty said, Monson Savings processed 565 loans totaling nearly $50 million.

In the early days of the pandemic, qualifications for PPP loans included every small business that was affected by COVID-19. Tom Senecal, president and CEO of PeoplesBank, said many applied because they didn’t know if they were going to be impacted.

“It’s good for consumers to increase their savings and their capacity to have money, but it also slows down the economy. We believe there is still some pent-up rebound spending by both consumers and businesses that we will be seeing.”

“There were many businesses that thought they were going to be hit hard but really weren’t,” he noted, giving an example of construction companies that were closed early in the pandemic but were then designated as essential and allowed to reopen.

Worden added that many companies that received PPP loans in the first round didn’t touch the money until it became clear their loan would be forgiven by the government. Once they figured out how to get loan forgiveness, they didn’t sit on the next round.

“We’ve had around 96% of our first- and second-round PPP loans forgiven with no denials,” he said. “The only ones who haven’t been forgiven have all started the process.”

All the bankers who spoke with BusinessWest said they were grateful to process PPP loans for area businesses. Worden said the urgency to get the first-round applications done required an “all hands on deck” approach that brought in many outside the loan department. His story reflects similar efforts from the other banks.

Dan Moriarty

Dan Moriarty says the pandemic changed people’s spending patterns, which may not be good for the overall economy.

Another dominant story during the pandemic was the real-estate boom, driven in part by record-low interest rates. Moriarty said activity on the buying and selling side has been brisk for some time. “We’ve seen a lot of activity where people are moving into a new house or buying a second home, whether it’s for vacation or an investment.”

The low interest rates have also brought a significant increase in people looking to refinance their mortgage.

“While it’s smart for people to refinance their current debt to get a lower rate, it doesn’t necessarily create new funds for the bank,” Worden said.

In early 2020, Monson Savings opened a new branch in East Longmeadow to increase its access to more companies and consumers. Moriarty admitted he had some anxiety about the timing.

“We made the decision back when no one predicted the pandemic would last so long,” he said, noting that, after a soft opening in August 2020, the branch has performed far above its forecasted numbers. “We’ve seen deposits increase 40% to 50% from when we opened.”

 

Bottom Line

All the bankers we talked with agreed the next three to six months will give everyone a better idea of where the economy, COVID, and the prospects for area banks are headed.

“I think we need to focus on getting through these next few months, and let’s get through the Delta variant,” Worden said. “We all have short-range goals, but we’re also keeping our eye on the long range.”

And that long-range forecast will hopefully call for taking that surge in deposits and putting it to work in ways that will bolster the local economy.

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