News Letter “Current & Future Price Trends”
Updated 10/14/20 This newsletter is updated near daily as the economy and situations change.
What are prices now? Why are prices changing? Where will prices be in 2021, 2022 and 2023?
Prices have risen this year and and so far there is no stopping it!
With chain reactions from COVID, prices initially went down but by late spring they reversed and started going up and haven’t stopped since. It is a combination of low interest rates and people working from home that are moving from inner cities to the suburbs. The local result of this is Solano County homes are up from $50,000 to over $200,000 from last year.
What might happen for the remainder of 2020? My predictions are not guaranteed.
For the remainder of 2020 it’s a great time to sell. Sales are easy & prices are up.
Prices will likely continue going up and sales stay strong enough to survive past election trepidation.
I believe there’s an 80% chance prices continue to climb and a 20% chance prices level off by year end.
What might happen in 2021? My predictions are not guaranteed.
Sales should stay strong and prices should continue to escalate because…
Working from home is not a fad. It’s the new normal, even becoming mandated. This makes people want to buy a home large and nice enough to both live and work in. The suburbs is where one can afford this.
Interest rates are promised to stay low until unemployment drops or inflation hits 3%.
Banks have continued to tighten credit regulations and even started charging an extra 1/2 point fee on home loans but that’s not enough to scare off borrowers.
I believe there’s a 75% chance prices climb and sales stay strong initially but by mid or late year home sales and prices level off or soften, but a 25% chance easier credit + more jobs bolster sales and prices continue to climb through year end.
What might happen in 2022? My predictions are not guaranteed.
*Jobs, **Baby Boomers, ***taxes, ****Loft conversions and *****interest rates will govern the market.
I believe there’s a 75% chance higher interest rates appear, sales from Baby Boomers increase inventory and homes take longer to sell causing prices to drop a little but there is a 25% chance new available jobs bring inbound migration which bolsters the Bay Area housing market.
* Above average unemployment, restricted or closed businesses and uncollectable rents can produce a small decline in California’s population or at least in California home ownership. Some may be forced to sell their home while some want-to-be buyers may not be currently employed and able to buy.
**Baby Boomers, people born between 1946 and 1966 are the largest demographic of home owners in California, most of whom will inevitably sell. Some will downsize. Some portion of seniors will retire out of state. Some will move in with their children or a nursing facility for care and sadly some will pass away.
*** Income tax rates, income tax write offs, prop 13 and 1031’s are currently all geared to promote homeownership. Higher income tax rates will leave potential buyers with less spendable income. A decline in write-offs for homeownership will take away incentives to own real property. An elimination of prop 13 will make homeownership too expensive for many to afford. And elimination of the 1031 exchange will discourage landlords from buying property. Time will tell whether these current tax laws stand fast or fade away.
****Loft conversions will become a trend over the next few years. This is a big one folks! San Francisco is seeing a large exodus of residents to the suburbs due to the “new normal” work from home trend. This is causing residential vacancies in San Francisco and a huge amount of office vacancy. The office vacancy will be so extreme that the market for office buildings will crash. The single most likely future use of this vacant office spaces is for them to be converted to residential units. The overabundance of available living space will drive prices in San Francisco down, way down, drawing many people to move back from the suburbs inevitably softening the suburban housing market in 3 to 5 years.
*****Low interest rates don’t boost sales. Lowering the interest rate does. As rates just got lowered to about as low as they can go, we cannot expect any boost to real estate sales in the near future from lower interest rates. The Feds can ease credit guidelines. This always stimulates the housing market if needed but low interest and EZ credit is risky and can end poorly as it did in the great recession of 2006 – 2008.
All of the above except credit easing will increase the number of homes for sale past what buyers will be able to absorb, causing a tipping from a sellers market to a buyer’s market. This is in addition to the recession most economists say the world is heading towards over the next few years. In my lifetime I’ve seen home prices go up and down and recessions come and go. It’s a normal part of the economy.
What might happen in 2023? My predictions are not guaranteed.
I believe there will be Inflation. The government keeps borrowing money. Some people refer to this as printing money because it adds to the amount of dollars in the world but does not add to the amount of tangible goods. This means there’s more dollars but the same number of homes. This, along with an increasing population are the causes of long term home inflation.
The good news is if you own real estate and are leveraged with a mortgage, a percentage of your house will be paid off with inflation. Example: If you buy a $500,000 house with $100,000 down and owe $400,000 you essentially own 20% of your home and the bank owns 80%. If your house doubles in value to $1,000,000 you would still only owe $400,000 which would then only be 40% of the value of your home. You then effectively own 60% of your home and your bank owns only 40%. Inflation paid off 40% of your home. That’s real profit. AND… If in years to come, inflation makes your home worth more by making the dollar worth less, each dollar should be easier to earn, making your declining balance easier to pay off!
To watch our debt grow in real time, go to this website. https://www.usdebtclock.org/
Questions & Answers
Q Is now a good time to sell?
A Yes. Prices are currently the highest they’ve ever been and homes are selling quickly. Selling now eliminates the risk of the market turning down before you sell. A bird in the hand is worth two in the bush. Home prices could continue rising through the first half of 2021 and possibly longer but there’s no guarantee how long this will last.
Q Is this a good time to buy?
A It could be. Interest rates and therefore monthly payments are low and home prices are rising. A caveat is most economists believe there is a recession coming which would cause house prices to decline over the next few years. If You plan on staying in your home for 10 years or more it’s always a good time to buy.
Q Should I fix my home up before I sell it?
A Yes. The typical buyer is a young, well-educated, well-paid professional with little interest in working on a home. They prefer it “Move-in Ready”, but improvements can cost more than they will benefit a sale. Cosmetic work is still considered the best investment when selling a home. Beauty always sells. Time is crucial. The market can change quickly. I offer a perfect amount of professional staging, painting and landscaping so you get top dollar; fast & hassle free.
Q With COVID restrictions, can you show your home?
A Yes. Open houses aren’t allowed but following guidelines, showings are allowed. Considering current prices, this has not been a hindrance.
Q What affect will the election have on home sales?
A Speaking with numerous people, the same questions arise. Will restrictions be lifted? Will jobs return? Will taxes go up? Will proposition 13 be revoked? Most of these issues could have an effect on the value or salability of a home in the future.
Q What about Multi–Unit properties?
A They are still in demand, however, there is currently a moratorium on evictions through the end of January for nonpayment of rent for any COVID reasons. Some counties are not allowing evictions for any reason right now. This inability to enforce rent collection is making buyers a little leery at the moment. A 1031 buyer is your safest bet.
Because multi-unit income producing properties are valued on their profitability or CAP rate (click here to see how it’s calculated), the new lower interest rates have made these buildings more profitable therefore their prices should go up after the new year if / when the eviction moratoriums end. But if vacancies increase due to unemployment, prices could stay stagnant or even decline. However, if due to unemployment, people are forced to sell their homes they may end up as tenants just like it happened in the 2007 recession. Then home prices dropped but rentals shot up in price. Add to that inflation, and multi-unit properties can be the investment of the century. That is unless stricter and more widespread rent control laws come into play. Then rental property prices could be stifled. Confusing isn’t it.
Disclaimer with regards to future predictions: Although this is compiled from my 25 years’ industry experience, it is only my honest opinion. Its accuracy can’t be guaranteed and should not be relied upon when making financial decisions.
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