If you thought 2020 was crazy, you’re right. But wait until you get a good look at 2021. At least “the crazy” is improving in some ways – especially if you happen to be a real estate investor.
These days, the housing media is full of headlines about the inventory crunch, looming housing “crises,” and the tipping point every real estate investor knows is coming as what may be the last extension of the U.S. Centers for Disease Control and Prevention (CDC)’s eviction ban and many mortgage-forbearance programs likely come to an end. As the second quarter of 2021 begins, investors should look back at the past 12 months for cues regarding homebuyer mindset for the remainder of the year.
Check out three of the craziest things that happened in real estate since the emergence of the COVID-19 pandemic in the United States.
Tampa Bay Runs Out of Homes
You have heard of limited inventory, but in Tampa Bay, Florida, things are getting ridiculous. In fact, at the end of March 2021, local real estate agents warned that if someone did not list their home soon, inventory would actually run out by the end of the following month!
Tampa Bay median sales prices were up 18 percent in March year-over-year, so you might expect that some homeowners would not be able to resist the allure of the high price tag. However, thanks to the intense inventory crunch, selling probably means you will not be able to stay in the area after closing. Local agents credit the attractive Florida climate that makes outdoor gatherings pleasant for most of the year, concerns about COVID-19 infections at open houses, and the need for more square footage thanks to remote work for homeowners’ reluctance to sell.
“People who are working from home now…decided they really need more space or need that pool if they are going to be at home more,” local agent Liane Jamason told a local news station. She called the situation a “perfect storm” and advised investors and owner-occupant buyers to make all-cash offers if possible.
“Black Friday” Lines for Open Houses
When you list a property and offer an open house for potential buyers to check out the property, you definitely hope you get a lot of interest. In 2020 and early 2021, however, homebuyers took that to the extreme. In many states, potential buyers would camp out on the lawn or sidewalk in order to get first glimpse (and hopefully the first offer) of a property during the open house. In Washington, D.C., one local buyer reported checking out houses on a Saturday where there were “people sitting outside, people going through the house, [and] people standing in the front yard.”
That particular homeowner looked at 50 houses in one weekend and got beaten every single time, with some properties selling for more than $100,000 over list price. They finally snagged a home for about $10,000 over asking by writing a letter to the seller explaining they wanted to buy a home so they could start their family. They made the first offer and believe the letter convinced the seller to take it.
Other buyers report making offers on properties they have never seen and starting out at the highest offer their budget would allow. Many also waived contingencies, including inspections, and included escalation clauses promising not to raise their offer by less than a certain amount. Real estate investors will likely have a huge advantage in this type of market because they are often accustomed to making offers on properties sight-unseen.
76 All-Cash Offers in Three Days
When an agent working in the suburbs of Washington, D.C. listed a four-bedroom fixer-upper on a Thursday, she knew the market was hot enough to support multiple offers. However, she did not realize she would encounter an all-cash bidding war that would drive the sale price up nearly $200,000 in just three days. When the property sold the following week, the owners opted for an all-cash offer with no contingencies from an investor planning to renovate the home and resell quickly. The seller, of course, was happy with the 70 percent increase on asking price!
There is a Time Limit on This Madness
As more and more buyers pile into the market trying to buy fewer and fewer properties, many are starting to wonder if and when the madness will ever end. According to the National Association of Realtors, median home prices have risen nationally by 16 percent year-over-year, and in some regions of the country they are up more than 20 percent. The rise has been fueled by demand, but also by low interest rates that have kept mortgage loans affordable for buyers.
“In the second half of this year, we will see higher mortgage rates and, as they tick up, it will cool,” predicted Brad Dillman, chief economist at multifamily real estate developer Cortland. He added, “Homes will sit on the market longer, markets will accumulate more active listings. Home building will continue, and new homes will pile up a bit. Those will continue to moderate price appreciation.”
However, with double-digit home-value gains in a market still likely to be geared for single-family homeownership and residence in specific areas of the country with temperate climates and less restrictive public health policies, buyers are likely to continue to face inventory-related challenges as homeowners elect to stay put rather than sell their homes. Danielle Hale, chief economist at Realtor.com, predicted more inventory could become available as early as Spring 2021, but she said more selection is unlikely to come with price relief this year.
“Prices will stay steady or continue to rise because there will still be more buyers than sellers, and interest rates will rise,” Hale said. She recommended against sitting out the spring rush if it is really important to buy a home. Melissa Cohn, an executive mortgage banker, agreed.
“The housing market will ultimately cool, but that doesn’t mean prices will drop 20 percent,” Cohn explained. “If you are comfortable you can buy it, you should proceed. Interest rates will go up.”
What does all this mean for real estate investors? It means that keeping a cool head is more important than ever, but working with any valid source of leads on deals could make or break your business in 2021. With the moratorium on evictions and most of the forbearance programs in effect expiring this fall, the current, crazy trends likely have a lifespan of another 6-12 months before they level off. Do not put your business and your investment returns on hold when you could be benefiting from this strange, unprecedented market.