What’s the real estate market going to do in 2021? Let’s talk about some of the emerging trends. Scroll quickly or digest slowly. Anything to add?
Market update at SAR: I’m doing a big market update at SAR on January 21st from 10-11:00am. Sign up here.
TRENDS TO WATCH IN 2021:
Continuation of aggressive market: My crystal ball is broken, but right now demand is truly excessive and inventory is about as low as it’s been, so for the spring season at least we seem poised to see the continuation of the competitive market we’ve had these past two quarters. Let’s remember one of x-factors why the market has been “on fire” though is rates below three percent.
Low inventory & vaccines: Housing supply is about half of what it should be locally and that’s the story in many areas around the country. There are many reasons why inventory is low, but the pandemic is a huge culprit. Frankly unless something happens to motivate owners to list their homes it’s hard to imagine normal inventory levels until we have a vaccine reach the masses and sellers feel more comfortable with buyers coming inside.
Thanks Sandra Schraeder for letting me use this photo.
Working from home: It was a game-changer for migration last year to see so many companies allow employees to work from home forever and this year we’re poised to see this trend continue. But let’s remember opportunities are uneven as the poor and low-wage earners are not likely to have increased mobility.
Buyer preferences: The pandemic has shaped buyer wants and needs and I suspect buyers will still target homes with larger backyards, built-in pools, larger homes, space for an office, and it wouldn’t be surprising to see condos be less appealing again this year.
The color of the year: This year Pantone has a twofer for their color of the year with both shades of gray and yellow. Gray has been prominent for years already. Do you think we’ll see more yellow?
Divorce: I was talking with a divorce attorney client the other day and he says his colleagues are all incredibly busy. While I don’t have statistics, I suspect the pandemic has caused life reflection and many couples have decided to call it quits. Of course having years of equity may propel this decision for some too.
Bubble concerns: Today I had two different people ask me what prices are going to do in the future (I didn’t give a specific answer). While we don’t have bubble hysteria, many prospective buyers are still wondering about future prices. Here are three truths to consider: 1) We’re now entering our tenth year of price growth; 2) It’s normal for markets to go up and down; and 3) What happened in 2005 isn’t the new template for every future market correction. For more thoughts see my open letter to buyers concerned about another housing bubble.
Uncertainty on the horizon: Housing headlines have been glowing lately, but let’s not get lost in the glory and forget we’re still in the thick of the pandemic and we’ve only scraped the surface of understanding the effect of the pandemic on the economy, job market, local businesses, foreclosures, and evictions. We need time see how all these things pan out.
Elimination of single family zoning: There’s a movement to do away with single family zoning to help create more housing and even undo some of the damage caused by past discriminatory practices such as redlining. In 2019 we saw Minneapolis do this by allowing up to three units to be built on a single family lot, and the City of Sacramento right now is talking about updating their general plan and moving away from unit-based density restrictions. This means instead of typically being able to build just one unit you could build a fourplex instead. For instance, read page 12 of this Sacramento City Council report (pdf).
Racism in real estate: I expect we will see many more headlines about racism in real estate. Much of the conversation has focused on appraisers, but it will likely spread to other professions within real estate too. My advice? Listen, be a part of the conversation, and change as needed. If you are local and want to understand some of the history of redlining and restrictive racial covenants, check out this UC Davis talk by Dr. Jesus Hernandez.
Proposition 19: This California proposition just passed and it allows homeowners over 55 to transfer their primary tax base to a replacement residence. This is a big deal as it can free up mobility for a segment of the population. But the other side of Prop 19 is it’s now not so easy for heirs to retain the tax base of the previous owner. On my end working with heirs I’m hearing lots of talk about selling instead of holding. Though before predicting an avalanche of listings I suspect we’re going to see some creative ways heirs can still retain properties without residing in them. Let’s keep watching.
Affordability: Low rates have helped buyers afford the market more this year, but prices have also risen. At some point the benefit of crazy low rates is going to be diminished by lofty prices and we’re going to see the narrative shift to the struggle of affordability.
iBuyers may have a better year: This year wasn’t pretty for the iBuyer model because companies liked Opendoor and Zillow basically paused their operations during the beginning of the pandemic. Right now in the Sacramento region Zillow owns 32 homes and Opendoor owns 19 homes according to Tax Records. A couple years ago Opendoor regularly owned nearly 100 homes locally for reference. Ultimately the iBuyer model took a step back this year, but expect them to gain a little more share this next year. Let’s keep it all in context though because these companies have only a tiny sliver of the market despite getting tremendous press.
1031 Exchanges: My analysis of local stats shows there are more 1031 Exchanges in an up market than a down market, so expect more of them this year. I’ve seen quite a few Bay Area investors park their money in Sacramento and I’ve seen some Sacramento investors move their money to lower-priced states. Of course lots of big companies such as Tesla have moved out of California recently. While that is a different thing, it’s something to watch because wealthy individuals and corporations are clearly weighing their options for where to park their money and businesses.
Goodbye California: Rising prices since 2012, the ability to work from home, and Boomers on the cusp of retirement will likely fuel more migration this year. Of course other groups will leave for other reasons too. I shared some migration stats last month from the American Community Survey and I’ll share more this year from other sources too. Stay tuned.
Other: What did I miss? What’s on your mind for the year?
RECAP NEXT WEEK: Stay tuned for a big market recap post with brand new visuals. Check out my social media this week for some previews (links on sidebar).
I hope this was helpful or interesting.
Questions: What else do you think will be important in 2021? Did I miss something? I’d love to hear your take.