Thoughts on RE market during COVID-19
Investor · USA · Member since 2019 · 117 posts · 57 votes
Where is the Real Estate market headed from here, will the prices go up, down or remain the same. Thoughts?
I am wondering the same! Was originally thinking prices would drop because of the covid recession, but that has definitely not been the case where I live (Austin). I wonder what is expected for this winter?
The reactions of the real estate market are always, by its own nature, slower than the reaction of the stock market, a delayed reaction to events depending mainly on unemployment, bankruptcies etc. So it can take maybe 9-12 months to have an accurate idea about how COVID impacts real estate prices.
I am wondering the same! Was originally thinking prices would drop because of the covid recession, but that has definitely not been the case where I live (Austin). I wonder what is expected for this winter?
Was also expecting prices to drop back in March, but hasn't happened here either.
I am wondering the same! Was originally thinking prices would drop because of the covid recession, but that has definitely not been the case where I live (Austin). I wonder what is expected for this winter?
The reactions of the real estate market are always, by its own nature, slower than the reaction of the stock market, a delayed reaction to events depending mainly on unemployment, bankruptcies etc. So it can take maybe 9-12 months to have an accurate idea about how COVID impacts real estate prices.
@Rehaan Khan economic events happen long before a real estate market sees the impact, if it does at all. Look at the housing crash. The stock market troubles started in 2007 and the crash occurred in 2008. Housing sales were actually pretty solid into 2008. Depending on the market, housing bottomed out in 2010 to even 2012.
The other thing to remember is housing prices are the result of supply versus demand. Demand can decrease, but if supply decreases as more, prices can still go up. Leading up to the housing crisis there was excess supply and overbuilding occurring. At the same time supply increased from foreclosures and demand dropped, which is what caused prices to fall.
It is really hard to predict what effect COVID may have on housing, but I do know it is too early to tell. The government is propping up the economy with stimulus, payment forbearance and unemployment. Once that all ends and if people are still out of work, that is when they will have trouble making payments and when we could see some stress on housing. This could take a couple years to play out, if it does at all.
I took a little breather from investing just to let the dust settle. The elections in November will be the defining event of the next few years.
When you have mortgage forbearance, you wont see much of a change until that stops.
10% of homes are in forbearance right now, just to give you an idea.
You have investors sitting on the sidelines waiting for prices to drop, and you have sellers who aren't giving in. So we are in a stalemate right now.
Keep in mind we had stricter guidelines after 2008, and banks are tightening up even more now. If you are on unemployment you cant even qualify to purchase (we all know how bad unemployment is right now).
Given all the data, I can really only give speculation on my market. I do see opportunity for the smart investor, when forbearance is up then we will see the distressed properties start to pop up more. Because these are likely homeowners that have been on the fence long before the pandemic hit. So likely more opportunity, just not cheaper opportunity like we saw 2009-2015. Besides that business as usual.
Time will tell, though!
When you have mortgage forbearance, you wont see much of a change until that stops.
10% of homes are in forbearance right now, just to give you an idea.
You have investors sitting on the sidelines waiting for prices to drop, and you have sellers who aren't giving in. So we are in a stalemate right now.
Keep in mind we had stricter guidelines after 2008, and banks are tightening up even more now. If you are on unemployment you cant even qualify to purchase (we all know how bad unemployment is right now).
Given all the data, I can really only give speculation on my market. I do see opportunity for the smart investor, when forbearance is up then we will see the distressed properties start to pop up more. Because these are likely homeowners that have been on the fence long before the pandemic hit. So likely more opportunity, just not cheaper opportunity like we saw 2009-2015. Besides that business as usual.
Time will tell, though!
Very interesting. You mentioned that prices *may* eventually drop for distressed properties. Are you thus saying you dont predict prices will eventually drop for well maintained homes?
When you have mortgage forbearance, you wont see much of a change until that stops.
10% of homes are in forbearance right now, just to give you an idea.
You have investors sitting on the sidelines waiting for prices to drop, and you have sellers who aren't giving in. So we are in a stalemate right now.
Keep in mind we had stricter guidelines after 2008, and banks are tightening up even more now. If you are on unemployment you cant even qualify to purchase (we all know how bad unemployment is right now).
Given all the data, I can really only give speculation on my market. I do see opportunity for the smart investor, when forbearance is up then we will see the distressed properties start to pop up more. Because these are likely homeowners that have been on the fence long before the pandemic hit. So likely more opportunity, just not cheaper opportunity like we saw 2009-2015. Besides that business as usual.
Time will tell, though!
Yeah, but the difference is sellers need to sell, or wish to sell, and buyers can sit on cash for a while and sharpen their axes in the meantime.
When you have mortgage forbearance, you wont see much of a change until that stops.
10% of homes are in forbearance right now, just to give you an idea.
You have investors sitting on the sidelines waiting for prices to drop, and you have sellers who aren't giving in. So we are in a stalemate right now.
Keep in mind we had stricter guidelines after 2008, and banks are tightening up even more now. If you are on unemployment you cant even qualify to purchase (we all know how bad unemployment is right now).
Given all the data, I can really only give speculation on my market. I do see opportunity for the smart investor, when forbearance is up then we will see the distressed properties start to pop up more. Because these are likely homeowners that have been on the fence long before the pandemic hit. So likely more opportunity, just not cheaper opportunity like we saw 2009-2015. Besides that business as usual.
Time will tell, though!
Very interesting. You mentioned that prices *may* eventually drop for distressed properties. Are you thus saying you dont predict prices will eventually drop for well maintained homes?
I think its entirely dependent on the given market. My market probably wont see much of a decline, but that's just my guess. Everyone seems to be doing fine who already own well maintained properties. If anything they are renovating them in.
I also dont think distressed properties will drop much considering they will all be bank owned within the next year or two. I just see a larger supply in the future when they stop the forbearance. There are already 100s of investors calling on that one bank owned property, it is nearly impossible to get your hands on something at a discount right now. When they do pop up they will be selling.
When you have mortgage forbearance, you wont see much of a change until that stops.
10% of homes are in forbearance right now, just to give you an idea.
You have investors sitting on the sidelines waiting for prices to drop, and you have sellers who aren't giving in. So we are in a stalemate right now.
Keep in mind we had stricter guidelines after 2008, and banks are tightening up even more now. If you are on unemployment you cant even qualify to purchase (we all know how bad unemployment is right now).
Given all the data, I can really only give speculation on my market. I do see opportunity for the smart investor, when forbearance is up then we will see the distressed properties start to pop up more. Because these are likely homeowners that have been on the fence long before the pandemic hit. So likely more opportunity, just not cheaper opportunity like we saw 2009-2015. Besides that business as usual.
Time will tell, though!
Yeah, but the difference is sellers need to sell, or wish to sell, and buyers can sit on cash for a while and sharpen their axes in the meantime.
That's my point. Sellers don't need to sell anything right now. They have mortgage forbearance in place.
The ones that need to sell, most likely have been needing to sell for a few years now. The inevitable is just prolonged. Hence why I think there will be a flood of bank owned properties at once. But there are plenty of buyers waiting for them like you mentioned.
When you have mortgage forbearance, you wont see much of a change until that stops.
10% of homes are in forbearance right now, just to give you an idea.
You have investors sitting on the sidelines waiting for prices to drop, and you have sellers who aren't giving in. So we are in a stalemate right now.
Keep in mind we had stricter guidelines after 2008, and banks are tightening up even more now. If you are on unemployment you cant even qualify to purchase (we all know how bad unemployment is right now).
Given all the data, I can really only give speculation on my market. I do see opportunity for the smart investor, when forbearance is up then we will see the distressed properties start to pop up more. Because these are likely homeowners that have been on the fence long before the pandemic hit. So likely more opportunity, just not cheaper opportunity like we saw 2009-2015. Besides that business as usual.
Time will tell, though!
Yeah, but the difference is sellers need to sell, or wish to sell, and buyers can sit on cash for a while and sharpen their axes in the meantime.
That's my point. Sellers don't need to sell anything right now. They have mortgage forbearance in place.
The ones that need to sell, most likely have been needing to sell for a few years now. The inevitable is just prolonged. Hence why I think there will be a flood of bank owned properties at once. But there are plenty of buyers waiting for them like you mentioned.
They may need to sell if tenants dont pay rent, and then stay in the property until being evicted.
@Rehaan Khan economic events happen long before a real estate market sees the impact, if it does at all. Look at the housing crash. The stock market troubles started in 2007 and the crash occurred in 2008. Housing sales were actually pretty solid into 2008. Depending on the market, housing bottomed out in 2010 to even 2012.
The other thing to remember is housing prices are the result of supply versus demand. Demand can decrease, but if supply decreases as more, prices can still go up. Leading up to the housing crisis there was excess supply and overbuilding occurring. At the same time supply increased from foreclosures and demand dropped, which is what caused prices to fall.
It is really hard to predict what effect COVID may have on housing, but I do know it is too early to tell. The government is propping up the economy with stimulus, payment forbearance and unemployment. Once that all ends and if people are still out of work, that is when they will have trouble making payments and when we could see some stress on housing. This could take a couple years to play out, if it does at all.
I took a little breather from investing just to let the dust settle. The elections in November will be the defining event of the next few years.
When you have mortgage forbearance, you wont see much of a change until that stops.
10% of homes are in forbearance right now, just to give you an idea.
You have investors sitting on the sidelines waiting for prices to drop, and you have sellers who aren't giving in. So we are in a stalemate right now.
Keep in mind we had stricter guidelines after 2008, and banks are tightening up even more now. If you are on unemployment you cant even qualify to purchase (we all know how bad unemployment is right now).
Given all the data, I can really only give speculation on my market. I do see opportunity for the smart investor, when forbearance is up then we will see the distressed properties start to pop up more. Because these are likely homeowners that have been on the fence long before the pandemic hit. So likely more opportunity, just not cheaper opportunity like we saw 2009-2015. Besides that business as usual.
Time will tell, though!
Yeah, but the difference is sellers need to sell, or wish to sell, and buyers can sit on cash for a while and sharpen their axes in the meantime.
That's my point. Sellers don't need to sell anything right now. They have mortgage forbearance in place.
The ones that need to sell, most likely have been needing to sell for a few years now. The inevitable is just prolonged. Hence why I think there will be a flood of bank owned properties at once. But there are plenty of buyers waiting for them like you mentioned.
They may need to sell if tenants dont pay rent, and then stay in the property until being evicted.
I only see this being a problem in D-class rentals. No one is taking eviction moratorium, at least in my area. I haven't heard one person having issues with that. Heck, if you are unemployed you are making more than if you were employed.
Strict screening would avoid a lot these problems, if a landlord is having issues with it then it was just a matter of time before they ran into similar problems.
Each sub-market is different, but I think we'll see a similar pattern to what we saw in the great recession. Mainly - coastal markets will see serious price declines (maybe 10%) and the middle of America will see a muted downturn if any (we're forecasting down 1% in 2021).
Midwest real estate remains one of the most stable assets out there...only serious down years in the last 40 were the trough of the great recession.
Short Term: Buyers and sellers are currently in a stalemate. Sellers (who aren't facing a loan maturity) will settle for anything less than pre-COVID prices, convinced that the market will return to normalcy post-virus. Buyers - however - are patiently waiting for sellers to adjust their expectations, so that they can get a deal.
Sellers will ultimately prevail in the short run. Reasons being: (a) employment will recover (b) investors will regain confidence in multifamily income streams as virus fears subside, and when they do (c) Freddie Mac / Fannie Mae rates will be lower than ever. Due to the Federal Reserve's absurd US Treasury and Agency MBS bond buying programs (which they plan to continue indefinitely), treasury rates, agency spreads and ultimately - interest rates - will be artificially low just as demand begins to pick up again. This cheap debt, combined with a resurgence of investor confidence - will lead to a short/intermediate term speculative bubble in multifamily that will benefit sellers.
The buyer pool - consisting of debt addicted institutions and high net worth individuals - will chase deals harder than ever before.
Long Term: Over the long haul, due to stagnant wage growth, and ever growing supply of "value add" units, and the Federal Reserves insane debt monetization policies - investors will soon realize that they can only squeeze so much rent / RUBS / pet rent / misc. income out of their tenant, especially in areas with relatively low AMI levels. Yield will be difficult to come by, and landlords will likely begin cutting capex, replacement reserves, etc. to maximize whatever meat's left on the bone. Tenants' quality of life will decline en aggregate.
Over the long haul - the world will begin to catch on the long con which is the Federal Reserves "QE Infinity" policy - which fundamentally de-values the dollar against fixed supply stores of value such as gold, and is basically an impossible situation for the Fed to get out of (especially since the Fed has proven they are no longer an "independent" institution). QE infinity, corporate bond buying, and (eventually) equity investments by the Fed will will result in dollar devaluation, and cause both (a) inflation and (b) the international community to lose faith in the dollar - and dump US Treasuries.
Over time, inflation will erode tenants' purchasing power - and make it more difficult to raise rents. Also - due to Federal Reserve manipulation of the money supply, nations will be less incentivized to buy US Treasury Bonds - which pay a fixed coupon in dollars (which are losing their purchasing power).
As a result, rents will stagnate and the treasury market will gradually sell off. Values will fall as tenant purchasing power declines and treasury yields climb - putting downward pressure on prices and upward pressure on cap rates.
Many of the geniuses who bought deals with government backed, 80% leverage, cheap debt, with interest only terms (during which they are not amortizing their loan) and syndicated the majority of the equity will slowly sink underwater on their 10+ year term loans with balloon payments.
Hi all, new to BP, Saw this interesting read predicting a downturn, thought I would share.
Apparently new cases of COVID are breaking records in the US, with over 61.000 new cases in a day.
A quick caveat before offering my 2 cents. I think that anyone who claims they can definitively predict the future of a market (housing, US corporate equities / credit, etc.) is likely selling some form of snake oil. Even the most well-researched, data driven viewpoints are nothing more than educated guesses at best.
That said, here's my take:
I think that COVID will radically shift how many employers structure office layouts and remote working policies. In a lot of ways, this quarantine has forced our world (particularly the corporate world) to undergo some sort of twisted and apocalyptic social experiment. The craziest part? The transition has been seamless in many instances.
Tech firms that were already on the cutting-edge of WFH policies will likely move to a completely remote setup with optional office time for key meetings. The old guard of white collar service industries such investment banking, consulting, and law may move to a hybrid model. I foresee something along the lines of rotational working arrangements or increased WFH options at least a few times a month. Of course, certain blue collar manufacturing jobs and hospitality roles may remain largely unchanged. This is due both to logistical constraints and the fundamental importance of human interaction.
While it may sound sensationalist, I believe that the foundation of Corporate America will look drastically different coming out of this pandemic. So what does that mean for residential real estate?
On a macro level, I'd bet on increased demand for suburban and even more peripheral / rural residential housing. My thesis is that the affluent millennial urbanites of NYC, Boston, SF, Chicago, Seattle, LA, etc. who have long shunned the idea of "settling down" will begin to relent. Rather than trading off comfort and amenities for prime apartments in city centers, this group will finally expand its appetite for housing in the suburbs and peripheral towns.
Existing residents in these suburbs, already willing to commute say 30 minutes daily, may expand their acceptable commute range even further given more flexible work arrangements. This would gradually push increased development, infrastructure, and community formation into even more peripheral areas.
Long story short, I'm optimistic about single family / midsize multifamily units outside urban centers. I think some smaller cities and towns could also be poised to prosper tremendously from this trend. For instance in the Tampa area where I live, a city such as Lakeland, situated conveniently between the booming Tampa and Orlando markets may thrive with an influx of commuters from both the east and west.
Then again, maybe I'm just out here selling snake oil.
I was thinking about the potential for finding some nice LEASE OPTIONS deals but worry that the folks that may want to or need to consider this as a selling strategy with an investor will have such HUGE amounts in arrears no...because they were already being a few months behind around the first of this year...and haven't paid on the loan since the virus hit. So NOW the mortgage is so far in the hole...Thereby making it very expensive to get into Lease Option deals for the foreseeable future.
@Max Baker I tend to agree with you Max. Even though I have been actively investing (since 2002) in inner city rehabs, I also have been promoting new/newer homes in the fringe suburbs (along the fast-growth leading edges). If you know your market area well, you'll learn how to identify those areas (in my case, select northern suburbs of Dallas TX) where a future boom in growth and appreciation are highly likely - supported by a proven history of growth and appreciation (after all, money keeps following money). Many of my out-of-state investor clients are looking for select homes in these select areas, but can't find them on their own b/c they don't know remote locations as well as local investors and Realtors.
BTW - You are also right about Millennials - a growing number have already started to change their views of residential homes/investments as they age and their own family needs are developing. We all start with our own "ideals," but as our lives progress, so do our needs and desires. There are intuitive reasons why suburbs have steadily grown, and as technology increasingly enables us to over come the logistical effects of distance (the COVID-19 social experiment will noticeably extend this ability) we also become less concerned about the logistics of distance in favor of quality-of-life for our families.
Appreciation is where the most money is made, and the fast-growth areas are where the most appreciation occurs (for 10+ years). Then those areas gradually transition into cash-flow properties, and the next new fast-growth areas emerges. Appreciate. Cash flow. Repeat.
Hi all, new to BP, Saw this interesting read predicting a downturn, thought I would share.
Great analysis! I wrote a thesis a few months ago that QE Infinity is going to drive real estate prices way up. Recent rise in prices validates my thesis to some extent. But I’m new to investing and maybe I’m oversimplifying. What do you think? https://www.notion.so/thinkemp...
Thanks for following up on my post, @David Krebsbach
The Dallas market looks like a fascinating place to be investing and selling property right now. Given your thoughts above, what is driving your investment thesis in inner city rehabs?
It seems like you prioritize appreciation...so do these inner city projects just allow you to control your own destiny and force appreciation rather than relying on more macro market dynamics?
I'm curious if you'll be reevaluating your own investment strategy as a result of the COVID fallout.
The housing market is only stable because of the FED. When rent moratoriums and mortgage forbearance expires, you will start to see big cracks in the housing market. My humble analogy.... It doesn't matter what floor you entered the elevator on, if the cables holding it (housing market) are weak, everyone inside will crash to the bottom. So don't brag about how much equity you have unless you have it IN HAND... invest wisely
Here in NJ, the RE trend is astoundingly crazy right now. Being that we are right out of NYC (where the numbers were hit the hardest back in the beginning of COVID) we have a rush of buyers who were likely planning to head to the suburbs before the pandemic hit, who are now trying to close.
As a few examples, I have a friend who had a listing for $975,000 in South Orange NJ. Her client's offer was #12 in the bidding war, and was at asking. The house just closed for $1,112,000.
Another house in the $375,000 listing price had 40 offers! 40!!! I don't know the selling price of it, but needless to say, it's well above asking. This is a trend for most homes here in North Jersey. It's very hard for buyers who were holding out, but phenomenal if you are selling. The fact that most people can work from home who have office jobs in the city, is the big push to flee to the suburbs. Why work in a tiny NYC apartment under complete lockdown, when you can do your work on a sprawling backyard and able to take walks around town in the afternoon? That's the motive here mostly.
I imagine things will settle once a vaccine comes out, the but net result is higher prices and a crazy summer market, especially in Essex/Bergen County.
@Max Baker I have two rather unrelated investment strategies, although emphasis shifts from time to time as markets evolve.
1) These tend to be local investors only, due to greater logistical involvement (contractors, etc):
a) Buy ugly houses at wholesale price to rehab and flip (mostly inner city, but not always - as I'm doing one now in one of the aging but still desirable norther suburbs).
b) Alternate exit strategy is to hold for good rental cash flow.
c) Or, if not ready for another rehab (or not in my preferred locations - as I'm working on one now way out of town to assign to another investor), sometimes assign the contract for a quick cash fee.
2) Buy, hold, sell new/newer homes (me and/or my investor clients) in leading-edge, fast-growth emerging suburbs for best opportunity for future appreciation (over next 5-10+ years). Then sell some for big payoff, or continue to hold as they gradually become better cash-flow properties (possibly refi to pull out cash), or possibly sell on 1031 Exchange and use proceeds to buy two replacement properties in then-current leading-edge, fast-growth emerging suburbs. That's the REPEAT part.
Although, I must admit, as markets conditions change I've done many types of investments over the past 40+ years (including before obtaining my Realtor license). You can't ALWAYS keep doing the same things, but I think it wise to become expert at a few and do them often.
Where I sit in a landlord friendly up and coming red state, the price of real estate has gone absolutely crazy. I'm all in on SFH and the rents are being driven sharply higher by the sheer lack units as people pour into the state from Seattle, Portland, and the Bay Area. Covid has somewhat slowed construction which has created a perfect storm for investors. Especially when people are dumping million dollar properties on coast are viewing $400k homes as a smashing bargain. So I'm making money and things are good. What I'm mainly concerned about at this time is the "cure" as being administered by the fed. I'm under no illusion that the dollar is less than resilient but I just can't help but wonder how long that credibility will hold if the fed continues to print more money in an effort to soften the blow.