Real estate has remained a vehicle for wealth-building across the US since the country’s founding. Although historically cyclical, the value direction has always been upward. As we have discovered in the memorable year of 2020, a worldwide pandemic has not changed the value of real property.
People need and desire a place to live, and they are not making any new land. Interest rates and lifestyle transitions have caused an enormous surge in both luxury, and second-time and first-time home buyers who are adapting to a new lifestyle opportunity across the US with the work-from-home or “gig economy” rapidly blossoming.
That said, government prohibition of foreclosures and evictions beginning in March 2020 is certain to have an impact as 2021 unfolds. The backlog of foreclosures is expected to be substantial and will likely cause a temporary softening in supply and demand balance. However, demand is still expected to exceed supply. The key difference now versus the 2008 crisis, for example, is that banks have not reverted to predatory adjustable loans made to subprime borrowers, and we have seen only an additional tightening of mortgage qualification since the onset of the pandemic.
We expect a tremendously strong 2021-2022 for new home builders. As history has shown, low inventory, low interest rates, and a desire for in-home lifestyle causes new home sales to soar. All of these factors are causing a rapid rise of prices, but not as extreme as we saw back in 2006-2008 before the market crash. Nevertheless, there is significant competition and bidding wars for quality homes on the market.
Commercial real estate, which has for many years outperformed, may be the biggest real estate loser for 2021, as many firms have moved employees out of expensive spaces and into their personal homes. The full effects, both short-term and long-term, are yet to be seen.
Consumer and work behavior are changing. With these changes will come new habits of living, parenting and working. Business owners are stopping and asking themselves questions they have never before asked. In the past, office and retail spaces have been expected in their industry, but has that changed? How far will Americans take the work-from-home economy? Will it last and become a new normal?
There are more questions than answers, but, once again, something that holds true is the value of real property. Low interest rates driving affordability and a need and desire for lifestyle change over the next couple of years is expected to fuel a strong and growing real estate market.
About the Author
Dr. Brian Simon is the founder of several businesses, but primarily spends his time as the principal broker at Fit Realty and as partner in his home building company, Custom Homes. He is also the author of The Real Estate Journey. For more information, visit briansimon.com.
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