While perusing the January issue of Yankee Magazine, I noticed an article on the impact of the in-migration of city folk into Vermont’s Northeast Kingdom. For those of you who don’t know, the NEK is one of the most remote, isolated, and impoverished areas of Vermont. The article by Ben Hewitt talks about how young locals are struggling to purchase homes to raise their families, all because of the influx of home buyers coming in from far away, overbidding, and buying homes for cash. The Yankee article notes that “in the past year, Vermont has seen real estate prices rise by double-digit percentages, a trend that’s largely been driven by out-of-state buyers (in October 2020, a whopping 60% of Vermont real estate was purchased by people living elsewhere).”
Those statistics probably sound familiar to most folks in rural areas of New England in general, along with the Adirondacks, the Catskills, western New York, and parts of Pennsylvania, as well. We are even seeing the impact of these buyers in suburban neighborhoods around Albany. While I can sort of understand the Manhattanites’ desire to buy a chalet on a mountain top, it is less understandable why a cape cod on a cul de sac is also subject to this trend.
Interestingly, this trend has been exacerbated by the expansion of broadband service in rural areas to assist students to go to school remotely during the pandemic. Prior to Covid, many rural areas pleaded for years for assistance in extending internet connectivity further into rural mountain ranges such as in Vermont and northern New York. Once third graders were able to get into their virtual classrooms, Wall Street traders were also able to work remotely from mountain tops and mountain villages, alike.
I worry about the long-term impact of this blip in the real estate sales for the last couple of years on long-term rural housing markets. From a macro perspective, I worry that the loss of ability to purchase their first home will have a deleterious impact on rural families’ ability to build wealth to the same degree as previous generations. So, this trend will hurt hard-working locals’ ability to build equity, and thus access to home equity in the future for starting small businesses, paying for college, or even covering retirement expenses.
As importantly, the prevalence of cash home purchases that circumvent the bank mortgage process reduces the workload for real estate professionals such as home appraisers and mortgage brokers. Realtors are doing well in this market, as their commissions are based on the inflated sale prices of the cash purchases. But the mortgage brokers and appraisers are the real estate professionals who serve as the brakes on unsustainable price inflation of housing. The cash offer that is currently so common avoids the brokers and appraisers, meaning that home prices can rise unchecked.
I assume that most folks think that the current situation is a temporary blip, and is likely to go away when the pandemic is resolved. But as the market settles back down, it will re-adjust based on these inflated prices, and home sellers will expect a similar return on investment for their homes, keeping asking prices much higher than the local market would normally bear. Mortgage bankers will have to figure out how to value homes irrespective of the comparables sold during this pandemic period. And it is worth keeping in mind that municipal assessors use recent sales in establishing property tax assessments. These new “standards” for real estate pricing will undoubtedly have a negative impact on assessments, with a potentially catastrophic impact on taxpayers who have lived in the community for a long time.
There are other impacts in the rural economy from the pandemic. I understand that many tourist destination communities, such as those in the Adirondacks or beach communities, have seen full rental occupancy during the pandemic. Anecdotally, motels in the mountain communities have been full for the last year or more. Communities that rely on short-term rentals during the summer season have experienced a major shift, as homes that rented by the week have been booked as year-round rentals for families seeking to escape major city centers, such as Washington, DC, or mid-town Manhattan. This past summer, it was nearly impossible to find a weekly house or condo rental at the Delaware shore. In those communities, there is a specialized industry that has grown up over the years to service the influx of weekly renters, making it possible to flip the rentals quickly, and to service (and profit from) the renters who are waiting for their rental home to be cleaned and readied for them. This includes realtors, housekeepers, laundry workers, waitstaff in local restaurants, salesclerks in the shops at the Outlet Malls, and even the folks that sell daily beach parking passes. Having most of the houses occupied by year-round residents suggests to me that these service workers will see their incomes suffer, and there won’t be as many dinners out per season per house, so it makes sense that revenues at neighboring businesses may take a hit.
Ultimately, the real estate bidding war smacks of un-neighborly greed. Over-bidding is making a social statement, similar to driving a Lamborghini and lighting a huge cigar with a $100 bill. It says very clearly “I don’t care about what is reasonable, what is prudent, or what is the social norm.” And that will contribute to the erosion of community in our rural communities. That will be a very sad outcome of the pandemic because our rural communities only work because of that sense of community and the common good.
The Curmudgeon
