2020 was a year all of us will remember. While Google Trends shows the most popular searches during 2020 to have been overwhelmingly stressful or negative; Kobe Bryant’s death, political turmoil, and coronavirus were the most searched items, it’s not apparent, at least from a real estate perspective, that 2020 was entirely bad. Low-interest rates, increasing home prices and a stabilizing commercial market are definite bright spots. With that said, however, we are still in a global pandemic and there are still many serious problems for millions of Americans invested in real estate. Read on to learn about some of the good and bad the real estate industry experienced during the crazy year that was 2020.
Some of the good things to come out of the 2020 real estate market were low-interest rates and, in return, a huge number of transactions in residential real estate. According to Freddie Mac’s Mortgage Rate report, as of January 7th, 2021, you could get a 30-year fixed mortgage at 2.6% interest. This is insanely low, and buyers jumped at the opportunity. Despite slightly higher rates in 2021, expect the rates to stay low as America continues to incentivize home buying due to the economic damage done by Covid. In a recent Forbes article, Black Knight, a real estate analytics company, reported the third quarter of 2020 to have been the “largest single amount of purchases ($455 billion), refinancing ($867 Billion) and total lending ($1.3 trillion) on record.” CoreLogic, another real estate analytics company, also released a report saying, “The housing market has remained a strong pillar in an otherwise tumultuous economic year. A sharp rise in demand, spurred by record-low interest rates, continues to bolster homeowner equity. And with many people now spending more time than ever before at home, some homeowners have tapped into their strengthening equity to fund renovations.” For now, your home is safe. As a matter of fact, now is the perfect time to refinance! It is one of the economic opportunities many Americans can take advantage of as a result of Covid and is one of the good things to come out of 2020. Reach out to REX Home Loans to learn how.
The second, albeit inconclusive, positive aspect of the 2020 real estate market is traditionally less popular cities such as Austin, Denver, and Miami are growing while the hardest-hit cities, San Francisco, Los Angeles, and New York, do appear to be holding their value. The National Association of Realtors released research that shows the 10 largest growing real estate markets in the world are in the middle of the country. Atlanta, Georgia; Boise City, Idaho; and Dallas, Texas are the top three growing markets in the United States. Oracle, Tesla, HP, and Palantir are all large tech companies that moved their headquarters to Austin, Texas, and Denver, Colorado according to Yahoo News. This is all good news for real estate in those geographies. That being said, the latest analysis would suggest California and New York are starting to see the “mass exodus” claims are overblown. Forbes mentions in the same aforementioned article, “It turns out, Brooklyn home prices have been holding steady, and many other parts of the city have seen improvements compared to last year. Overall, the New York City population has declined just 0.01% from 2019 to 2020.” Jason Oppenheim of the popular Netflix show Selling Sunset told Fox Business, “[Covid] hasn’t really impacted the market at all, and not just for me and my business, but really for the entire city of Los Angeles. Prices are still increasing; sales volume is healthy. So, things are OK.” To see both growth in smaller markets and also see the traditionally larger real estate markets still holding their value is a great sign. Anything can still happen, but as the vaccine gets distributed and the world begins to move past Covid, people will consolidate and so will the traditional real estate markets.
Lastly, there are sectors of commercial real estate that are thriving. According to an Investopedia article, “There are some sub-sectors within commercial real estate that are surviving and even thriving. Warehousing related to e-commerce, self-storage spaces, and retail spaces leveraged to grocery and pharmacy are riding out the pandemic based on the clientele they serve. Properties serving as data centers, for example, are unlikely to be negatively affected by the pandemic, as the need for these services has only been accelerated by lockdowns and remote work.” While a good amount of commercial real estate is having a tough time, it is not across the board. Certain parts are doing better than ever thanks to Covid.
Among some of the more unfortunate realities is it’s a very difficult time to be a buyer, especially if it is your first time. Suzanne Seini, a realtor at Active Realty, says in Forbes, “First-time homebuyers did face more challenges this year than in the past. Since the start of the pandemic, California has experienced record-low inventory (the number of available houses for sale). With low inventory comes high home prices.” If you’re young and trying to buy a house right now in traditionally expensive markets, expect to have limited options and to overpay.
Another problem is, given the high unemployment rates due to Covid, delinquency rates are increasing and becoming a serious problem. According to CoreLogic’s research, “the serious delinquency rate for October 2020 was 4.1 percent, representing a 2.8 percentage point increase compared with October 2019. The rates increased for all loan types in October 2020 compared with October 2019. In addition, the delinquency rates for FHA and VA loans reached a high, surpassing the highs seen post-Great Recession. The rate for FHA loans was above the 2012 delinquent levels by 2 percentage points.” Unfortunately, this is pretty serious. The article further mentions, “The FHA has further extended the deadline for single-family borrowers with FHA-insured mortgages to request forbearance…about 84% of loans that were seriously delinquent in October were in forbearance.” For all the feel-good commentary on the low-interest rates, people are still having trouble making their payments, especially on FHA loans. That is something to certainly keep a close eye on and be wary of.
Aspects of commercial real estate are slowing with office and retail space being in the midst of an existential crisis. Ex Vornado Realty executive, Wendy Silverstein commented in Bloomberg News, “There’s a lot of collateral damage that’s going to be hanging around for a while.” To be more specific, UCLA Anderson Business school specifically released a report where they say, “The current recession has tripled down on the struggles retail already faced during the previous economic expansion. First, household loss of income and shelter-in-place policies reduced the current demand for brick-and-mortar retail. Second, the inability to physically frequent many retail establishments created a new set of online shoppers.” This is causing retailers to operate leanly and pray it isn’t too long before malls are filled with shoppers again. Deloitte also released this report that says, “offices, hotels, and retail have felt the negative effects [of Covid]. Global CRE deal volume declined 36% year over year (YoY) to US$306B in 2Q20 due to economic stagnation and an uncertain pricing environment. Prices are showing early signs of stress across the more negatively impacted property types. For instance, US retail and office price indices declined 4.1% and 0.5% YoY in August.” Those are some difficult numbers to accept if you’re invested in retail and office commercial real estate. Let’s hope it can recover as 2021 continues.
It goes without saying that Covid-19 threw a very large wrench in the plans of almost every home or commercial real estate owner. 2020 was a crazy year filled with unexpected outcomes, especially in Real Estate. Some struck gold with increasing housing demand or commercial space designed to support the digital economy. Unfortunately, first time home buyers, commercial retail, and commercial office space had a tough year. Only time will tell what 2021 has to offer and what sectors of real estate will benefit, so stay tuned.
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