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SHOW NOTES FOR EPISODE 434: TOP REAL ESTATE TRENDS FOR THE THIRD QUARTER OF 2020
During the coronavirus crisis, the U.S. economy has experienced a record jump in unemployment, record-low mortgage rates and a whipsawing stock market. All of that leaves the housing market in uncharted waters. In today’s podcast, Bill will take a look at housing market and six top trends all real estate investors should be watching.
Tip of the Week
- Don’t over-leverage yourself
- You can be very successful for a long time and still go broke if every rental is mortgaged to the hilt. If you keep some of your rentals free and clear and some of them financed then you’ll have a good mix of safety and still stretching your resources.
- Do it right, and a few longer-than-expected vacancies or dips in your cash flow doesn’t have to be the end of your career.
Top Real Estate Trends for the Third Quarter of 2020
During the coronavirus crisis, the U.S. economy has experienced a record jump in unemployment, record-low mortgage rates and a whipsawing stock market.
All of that leaves the housing market in uncharted waters. The biggest challenge right now is just overall uncertainty. Where is the economy headed? How is the government going to play it? Has unemployment peaked?”
Those are the questions atop everyone’s minds. With the caveat that this crisis has perplexed nearly everyone who has tried to predict what’s next. So, I’m presenting here six top trends for real estate and the housing market in the third quarter of 2020. These are the key factors we all should have our eyes on!
Trend 1: Home prices are holding up
When the U.S. economy fell into recession, many feared that the housing market would follow. Instead, home values have remained strong. Nationally, the median price of existing homes sold in May rose 2.3 percent compared with May 2019, according to the National Association of Realtors.
Even in hard-hit areas like Las Vegas, where the hospitality-based economy has ground to a total halt, home values have held firm.
The prediction initially was that inventory was going to rise, panic selling was going to take over and prices would fall — Instead, the results have been the exact opposite of that.
True, demand for homes has fallen. There were 3.9 million sales of existing homes in May, down from 5.3 million in May 2020. But many homeowners delayed putting their homes on the market due to jobs and economy uncertainties.
As a result, there’s a strong demand for the comparatively few homes that are on the market. In fact may realtors report seeing much pent-up demand and July numbers are exploding.”
Despite the sharp downturn in the economy, bidding wars are common as eager buyers compete for limited inventory. It’s like when toilet paper first came back to grocery stores – homes are flying off the shelf.
Federal stimulus has been crucial to propping up the housing market. Generous unemployment benefits and mortgage forbearance that has allowed borrowers to skip payments for up to a year, have taken much of the pressure off. In addition, the Federal Reserve has stepped up its purchases of mortgage-backed securities, a move that has helped to push mortgage rates to record lows.
We’re not seeing home prices drop too substantially just yet because of all of these federal programs. However, it’s unclear how long home prices will keep rising. CoreLogic, an Irvine, CA-based corporation providing financial, property and consumer information, analytics and business intelligence, is predicting a 6.6 percent decline in home values from May 2020 to May 2021 as economic reality catches up to the housing market.
Trend 2: Americans are migrating to the suburbs — at least for now
The coronavirus hit hard in Manhattan, the nation’s densest living quarters, leading many commentators to predict that only the hardiest urban dwellers would keep living in high-rises and commuting on subways. Many others would simply move to the ‘burbs.
Around the country, real estate brokers and lenders report strong buyer interest in suburban neighborhoods, and only tepid activity in the densely populated city centers that had been hot over the past decade.
In the early days of the pandemic, urban dwellers — at least those who had the flexibility to move — looked to the suburbs as a way to socially distance. If office workers stop going into offices for good, many of them could decide they prefer a bigger house in a less-congested neighborhood.
Remote work has proven to all of us that you can work from anywhere. It’s causing people to question, ‘Where do we want to be?’ We may see in the future a migration out of city centers.
The emphasis is on “may.” New York, San Francisco and other urban hubs have built economic momentum over decades, and they’re unlikely to lose their appeal altogether. And of course, “all of us” is relative. Many tens of millions of jobs are location-based, especially jobs that don’t pay as well.
“The move from vertical, urban living to one-acre living in the suburbs is clearly the trend right now,” according to John Peyton, chief executive of Realty Franchise Group, the parent company of Century 21, Coldwell Banker, ERA and other brands. He further states – “What I don’t think we know yet is if this is a long-term trend. I think this is clearly the phenomenon until there’s a vaccine.”
While interest in the suburbs has grabbed headlines, will the migration become permanent?
According to Franco of SitusAMC , “Yes, there are some folks who can afford to move out of the city to larger homes, but that’s not the majority of people who live in cities.”
Trend 3: Record-low rates are here to stay
Mortgage rates fell to record lows in June. Then they fell even more in July. The average 30-year fixed-rate mortgage cost just 3.31 percent (including points) as of mid-July, according to Bankrate’s national survey of lenders.
Many economists expect mortgage rates to remain low, and possibly trend lower. Many are forecasting rates are going stay like this this year and all the way through the next.
Low rates increase buyers’ purchasing power, although they also drive up home prices. Meanwhile, lenders are flooded with demand from homeowners looking to refinance. With the economy still weak and Treasury rates at rock-bottom levels, many experts feel that low mortgage rates are here to stay.
Every time rates have looked like they might start rising over the last couple weeks, stories about COVID-19’s re-emergence reverse that trend. Given the fact that many states are starting to shut down parts of their economy that were recently opened up, I think this will keep rates at their current low level.”
Trend 4: Shopping for somes is going virtual
Since mid-March, Realtors have been telling tales of consumers spending hundreds of thousands of dollars despite never setting foot in the home they’re buying. Such sight-unseen deals are made possible in part by virtual tours of properties for sale.
Deserved or not, Realtors long have had a reputation for resisting new technology. That’s changing, says Jim Weix, broker associate at Keyes Co. Realtors in Stuart, Florida. Weix says buyers increasingly are flocking to 3D tours and virtual walk-throughs instead of in-person visits.
Weix recently sold a Florida home to a New Jersey couple who hadn’t visited the property. They worried that if they flew to Florida to visit the home, they’d be forced to quarantine for two weeks when they returned home. As much of a pain in the butt as the pandemic has been, it has forced the real estate industry to invest in technology.
Trend 5: The mortgage process is going paperless
Until March, borrowers marveled at the stacks of paperwork that accompanied the mortgage process. But, with social distancing being the new rule, the lending industry suddenly embraced such practices as notarizing signatures remotely rather than in person.
It took a long time for remote notarization to get accepted but, in a two-week period of time, states that had taken years to approve it suddenly were approving it on a conditional basis.
The industry has moved to a completely digital process with breathtaking speed, according to Leo Loomie, senior vice president at Digital Risk, a technology and consulting company.
“We’ve seen dramatic advancements in the push toward digitization in the last 90 days. We’ve made a couple years of progress in just a couple of months,” Loomie says. “From your dining-room table, you can complete the entire transaction. It beats going to the closing company and signing reams and reams of paperwork.”
The virtual trend means loans are likely to close more quickly than in the past, Loomie says — with the caveat that the current flood of refinance applications has created a backlog.
Trend 6: Millennials are entering their prime home-buying years
Much has been made of the reticence of millennials to get married, have kids and buy homes. The average credit score of a millennial is just 670, too low to qualify for the best mortgage rates. As a result, a lot of millennials are waiting to buy homes.
There’s a litany of reasons why Americans ages 24 to 39 are not buying like their parents did at the same age. Record student debt is one issue. And older millennials entered the job market during the hangover of the Great Recession, a reality that depressed their earnings.
However, some foresee a boom in home-buying by millennials in the coming years. Some millennials want to buy homes and are poised to jump into the housing market.
This is the year that the peak of the distribution of millennials hits 30. We’re right in the thick of those millennial s transitioning into the homeownership-demanding years. That’s a long-run tailwind that will last for many more years.
Even student debt isn’t all bad news. While college loans hamper millennials’ ability to save for down payments, the debt also means those borrowers have acquired education and skills that will earn them more money in the long run.
Those are a few key real estate trends you should take note of and monitor. A lot can happen in the next month and up to elections in November. This is a game that is all about change being the norm and trends flipping on a dime.
DISCLAIMER: Many of the above strategies take knowledge and have a higher degree of risk. You need to do your research and/or work with someone who is experienced to reduce your risk.
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