2021 Real Estate Overview and Forecast

2021 Real Estate Overview and Forecast - by David Mashian

REAL ESTATE LOANS

Interest Rates – Historically low interest rates have driven the recent residential purchase and refinance boom. Lenders are independently raising interest rates to slow demand. The Fed will keep interest rates low until 2023 to help offset a housing and economic crash.

Commercial Real Estate Loans – The major banks are for the most part not lending in commercial real estate. Private money, regional lenders and Asian banks have stepped in to fill the gap. Apartment, industrial and single tenant net lease properties can still get favorable financing.

Retail, Office and Hospitality – The pandemic has hit Retail, Office and Hospitality particularly hard as a result of the lockdown. There is high vacancy and high job losses. Loan options are limited. Repurposing such properties is an opportunity, and there is financing available for this.

THE RENTAL MARKET

Jobs – Mortgage delinquencies are rising as more temporary job losses have become permanent, many Americans have been left tapping into their savings to keep their home loans current. People losing homes will become renters as a result of job loss.

Evictions – Despite stimulus money helping support residential tenants in their rents, expect to see higher evictions in 2021 with the ending or diminishing of government stimulus money, and the end of eviction moratoriums.

Vacancy – Tenants are also voluntarily moving to lower rent areas. This is causing higher vacancy in high rent areas and city centers. Areas as Silicon Valley, San Francisco, Manhattan are examples where tenants are moving out of because they can do their job cost effectively working remotely.

REAL ESTATE INVENTORY

Home Mortgages – Forbearance agreements will expire, many foreclosures to come as a result since many unemployed homeowners are unable to make mortgage payments. People who took forbearance are harder to refinance, further exacerbating the issue.

Foreclosures – The 2019 foreclosures have been on hold during the pandemic, resulting in a one-year backlog waiting resolution. This is compounded by pandemic caused foreclosures expected to start in 2021.

Rental Property Inventory – Investors in states as California and New York are uncertain how they will cover expenses while unable to evict non-paying tenants, yet with higher vacancy and lower rental rates. We are seeing increased apartments for sale.

Home Prices – Housing demand and prices went up due to low interest rates and a shortage of homes for sale, since many homeowners put off selling their homes due to the pandemic. Prices should stabilize or decline as the backlog of inventory hits the market.

POPULATION MIGRATION

Remote Working – Jobs have gone more virtual as a result of the COVID-19 lockdown, so people are working from home. Both employers and employees seem to favor this shift with both seeing a cost savings as a result. This is a trend that will continue and grow.

Moving Out of Major Metros - Since remote working (and studying) has become more acceptable, renters and home owners are foregoing paying the “location premium” required to live near work and are moving to the suburbs and small towns where there are greater options.

Population Shift - With high costs, anti-business attitudes and a challenging social climate, such states as California and New York are losing population to the “Smile States” as Arizona, Texas, Georgia and Florida to name a few. The trend will continue and accelerate.

New Home Construction - Construction is booming as there is an increased demand for housing, and in particular in the suburbs and secondary markets of the “Smile States”. Affordability and quality of life are a priority with rising housing costs and high congestion in big cities.

POLITICAL

Presidential Election - The turmoil in the Presidential elections will be resolved with Trump being re-elected to the Presidency. This will bring greater confidence in real estate and the economy. His aggressive pro-business policies will go into overdrive to get businesses back on their feet.

One thing is clear, we are in the midst of an economic opportunity for those that can adapt. Staying open and unattached to what once was, and acting boldly on the new is key.

I hope you have found this newsletter helpful. Please feel free to contact me anytime.

David Mashian

310.903.6907

[email protected]