This week we answer the question everyone seems to be asking, no matter whether they are in the industry or not — what is going on in real estate? To fully understand what is happening and why, and to help predict whether or not it is still a good time to invest in real estate, Hallie and I dig deep into the latest numbers and data to give a clear picture of the facts. We have put together a helpful slide presentation you can download and follow along with while listening to this episode. In reviewing the data, we will be answering three major questions about real estate and the economy: should you wait until prices come down, why prices keep going up, and when will there be more supply? Open up the slides, grab a pen and paper, and get ready to join us to finally get some answers based on the facts.
In this episode, you will learn about:
- The median home price rose from $271,300 in 2019 to $297,000 in 2020 for a 9% gain.
- Nationwide, an average household would need to spend 16% of their income to buy a median-priced home.
- In a healthy market, new construction sets the barometer for pricing. You are seeing interest rates dropping and new construction not there, which is pushing pricing through the roof.
- We expect appreciation to remain elevated in the first half of 2021 and taper off in the second half of the year. This does depend on inventory levels rising. If inventory levels are lower than anticipated prices could grow near double digits.
Take a listen and let us know what you think with a comment below! If you like what you hear, make sure to subscribe and share with a friend.
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Timestamps
[2:33] Inflation refers to an environment of generally rising prices of goods and services within our economy. As general prices rise, the purchasing power of the consumer decreases. The recovery of the job market has begun to generate consistent wage gains, compared to 2000‒2012, which experienced -4% to 1%. Positive gains in annual income can fuel housing demand. Even with COVID-19, incomes increased in 2020.
[8:47] We discuss how the Census defines unemployed vs. employed, and how independent contractors and those who are self-employed are not always counted as employed.
[11:38] The rate of home ownership has been steadily declining from almost 67% in 2008 to a low of 64% in 2018 and the rate crept back up to almost 66% in 2020. We talk about the scramble for home ownership, with 40% of all purchases being first-time home buyers.
[15:22] COVID-19 accelerated the trend of people wanting to have appreciation and the desire to have a roommate-free quality of life.
[20:23] From 2014 to 2017, housing inventory dropped to a national average of 3.9 months, crept up to 4 months in 2019, and dropped again to 3.1 months for 2020 average — but as low as 1.9 months of inventory in December.
[27:07] Should people wait to buy a home until it gets less expensive and inflation goes down? If interest rates rise, it may make what you waited for more expensive. Mortgage rates dropped to recent lows in 2020, and are expected to remain low throughout 2021.
[34:44] Real estate is never a bad investment, however, if you are trying to flip houses, that requires a whole different metric.
[38:25] There are very few distressed sales. Foreclosures and short sales made up 1% or less of the last three years of sales. Banks are no longer looking to foreclose properties. They would rather clean it up and be sensible.
[46:11] For the next couple of years, new construction is going to be very strong because there has been a lack of it over the past decade.
[56:35] We talk about why we think foreclosures will be kept to a minimum.
