SOUTH & WEST: MIDYEAR, 2020
With lockdowns ravaging California to close the year, the housing market continued on a tear. The median sales price crossed the $712K threshold for the first time in history, despite a whopping 16.4% unemployment in April 2020, and resting at about 10% to close out the year (New York Times). Despite this, Los Angeles, San Jose, San Diego, Sacramento, and San Francisco represented the markets with the biggest mortgage originations nation-wide (ATTOM Data Solutions). Fueled by a lack of inventory and stringent lockdown rules, and aided by record-low rates, homes are moving quickly. Equity is building at a rate not seen in the state since 2005, and homes are outpacing equity rates nationally (Bloomberg). Given that a broad swath of the state is seeing high demand, from Riverside, Sacramento, and San Diego, to LA, San Francisco, and San Jose, the opportunity is rife. Any chance to take advantage of a flip or acquisition of a long-term rental should produce a solid windfall for investors- a trend that will likely continue into 2021.
Interestingly, while the market has been hot across the country, things are beginning to stagnate a bit in New Mexico. Demand has been steady, without some of the larger spikes based out of major cities into the suburbs. The median sales price for a home in the state is under $200K (Farmington Times), but New Mexico is close to the top with foreclosure rates nationwide (PR Newswire). Despite the affordability, it would remain to be seen whether there is an opportunity for sales in the flip market; perhaps diving into the rental pool in the major cities, such as Santa Fe or Albuquerque, would be a smarter move.
While Arizona is on fire, some cities are suffering a massive shortage of homes at the time of incredible demand; Phoenix alone has only about 1-4 months of inventory, down ~21% from September 2019 (Redfin)– well below the markers for a balanced market. Furthermore, the COVID-driven home buying effect is exacerbated by a ~16% population growth from 2010-2019, a figure which is higher than the national average and comparable metros, and that was before the pandemic (US Census Bureau). With such limited options, home prices are predicted to increase, led by Phoenix, which is projected to have its home prices increase ~6% (Home Buying Institute). As such, 2021 should continue to be prosperous for sellers in the Grand Canyon State.
The Texas housing market remains red-hot despite the pandemic and looks to remain that way for the foreseeable future. In October 2020, sales in the Austin-metro area were up ~30% (Austin Board of Realtors). In Dallas, prices are up 4.9% annually (Dallas Morning News). With the post-COVID economy predicted to remain strong in the state, Texas has been added to a list of states that the National Association of Realtors expects to perform well over the next two years (National Association of Realtors). Low unemployment, immigration from higher-taxed states (and states looking at increasing taxes to make up for COVID-related deficits), leisure, and hospitality look to keep these areas strong (NAR). With half of the homes selling for less than ~$365K (Dallas Morning News), affordability is still low enough for investment opportunities, but the window is likely only within the next two years: too much growth may impact the affordability of homes, particularly if there is national economic lethargy post-COVID.
Colorado might see the first initial pains of the post-COVID real estate boom in 2021. Denver sets the economic and real estate tone for the state, for good and bad, trending this way in the most recent recessions. While recent years have been a boom for the city, the loss of wages caused by the pandemic may be a harbinger of economic decline for a state that relies heavily on tourism, which has been largely impacted by coronavirus (Colorado Hard Money). With less money, there is less real estate demand, either for primary or secondary homes, resulting in what is predicted to be a ~9% drop in prices by May 2021 (CoreLogic). This would place the Denver-Metro area among the most-overvalued areas nationally. While inventory is limited and may be a mitigating factor in the predictions, investors should hold off on making moves in Colorado any time in the near future.
Montana is seeing a boom in the luxury and secondary home market that is projected to continue into 2021. The FHFA reports that Montana has seen one of the largest price increases in the country at ~10%, fueled by open spaces and relatively limited coronavirus impact (FHFA). Housing prices were on an accelerated trend prior to the COVID crisis, even though income is not rising with respect to living and real estate costs (The Missoulian). The rise of work-from-home culture, however, has meant that big-city employees are getting more bang for their buck in Montana; opportunities may be available for a flip property in 2021.
Closing out the year, Oklahoma is one of the only metros in the country that has not reached the recovery stage in the top 50 markets (Realtor.com). Oklahoma is also the 4th least-expensive market in the nation (Norman Transcript). These two factors are red flags, the latter of which should not be interpreted as an investment opportunity. The continued weakness of the economy throughout the state should ward off investment, especially as the economy is projected to suffer further short-term weakening whilst COVID enters its worst phase yet.
While Louisiana also benefitted from the COVID market price increase, the numbers reflect the state’s continued economic quagmire. Whereas some states posted double-digit sales price increases throughout 2020, prices in Louisiana have increased only ~1.7% to date, ranking 48 of 51 entries, including 50 states and the District of Columbia (LittleBigHomes.com). Much of the country posted significant gains as a consequence of the COVID-induced housing boom, so such a small margin of growth is concerning. Additionally, Louisiana is among the states with the most underwater mortgages (CoreLogic). With federal assistance via the CARES Act expiring in December 2020 and a likely retraction of prices nationally, Louisiana is projected to be in another poor position come the new year, with the number of mortgages underwater increasing as the economic effects of the worst of the COVID impact take hold.
Alabama could become yet another victim of the post-COVID boom. October clocked in with home prices soaring ~14% from the previous year; inventory declined by almost ~28% (Huntsville Business Journal). However, the high demand is leading to two major problems: 1) affordability and 2) foreclosures. Alabama was among the three states posting the highest foreclosure rates in the nation (1 in every 6,600 housing units) (World Property Journal). Alabama also posted some of the largest numbers of REOs filed in October. While still well below the national average, and foreclosures are thus far ~80% lower nationally than 2019, such figures are worth taking notice of. Foreclosures are occurring in COVID hotspots where unemployment rates are higher, something Alabama has seen; additionally, foreclosures could be down nationally due to government measures. Given the evidence, and with governmental assistance drawing to a close, these numbers are sure to increase, placing the state in a precarious position to kick-off 2021.
Floridians are looking to potentially suffer the worst in the new year. Florida has been notoriously lackadaisical regarding protections for workers and providing relief for tents and renters. Via CNN, more than 1M Floridians have “slight or no confidence” that they will be able to pay rent for January 2021, as the CDC moratorium on evictions is set to expire on December 31 (CNN). In Broward County alone, evictions are expected to rise to ~15K- triple the number of that time period for the previous year. In Miami-Dade County, the Miami-Dade Homeless Trust reported ~6,400 eviction notices filed from March 13 to November 30; that figure is set to impact around ~18K people (Miami Dade Homeless Trust). The problem will be multifaceted from an investor standpoint: 1) rental income has dried up for the better part of the last nine months; that is surely impacting ROI and ability to pay bills, mortgages, etc., leading to the question: how many landlords are already in arrears, and could this impact foreclosure rates? 2) with so many people affected by pandemic unemployment and turned out to the street, is there enough of an influx of population to Florida to afford these homes, further compounding problems and leading to a foreclosure crisis? and finally, 3) in the event that homes are sold quickly to get out from underwater mortgages, will homes be undervalued in a low-tax, warm-weather state, causing an overheating of an already competitive market? It bears watching heading into the first few months of 2021 before making any calculated investor moves.
Predictions are a bit mixed for Maryland heading into 2021. Areas like Baltimore are seeing historic demand, fueled by record-low interest rates and pandemic fears. In Baltimore City and the surrounding Metro, prices are at 10-year highs, and the median number of days on the market is the “lowest in recorded history” of the area (The Baltimore Sun). The demand applies to both detached and attached housing and is spilling into townhomes as inventory continues to dwindle. While some, such as Bright MLS, forecast this trend to continue as pandemic fears also continue, others are not as optimistic. CoreLogic predicts that the average sales price will decrease by around ~1% by April 2021, the first time in nine years (CoreLogic). The theory rests upon continued elevated unemployment, which might be exacerbated by a tragic COVID winter. However, with just a slight dip, a new federal administration seeking to shore up coronavirus regulations, and still-tight inventory, Maryland will potentially have a rebound into the summer months and for the coming years, making it still a strong area of investment for 2021 and beyond.
The District of Columbia has always been in-demand, with a strong jobs market centered around government and its adjacent accouterments, but 2020 has put it over the top. Long & Foster reports inventory of active listings is down more than ~30% in the DC and surrounding metro area (Long & Foster). While government jobs will always ensure demand in the area, the rise of work-from-home culture may deflate some of the pent-up demand from the pandemic. While growth may slow slightly, particularly in the upcoming months (predicted to be the worst of the pandemic thus far), once a return to “normalcy” is restored, DC is expected to see continued positive progress for the coming year.
Delaware will remain a strong point for investment into the new year, aided by its optimal location, sandwiched close to Philly, NYC, NJ, and DC (just ask President-Elect Joe Biden). With lower costs than its East Coast counterparts, Delaware is decidedly more affordable for relatively the same access. Over the course of the last decade, income is up approximately ~40% and rent growth over the same period is up ~74% (Morris Tribune). Delaware also has a strong rate of foreclosures, one in every 9,310 housing units (Mortgage Professional America). These two factors together would provide a strong opportunity for a long-term investor looking to potentially pick up properties at auction and stabilize them. Delaware’s location will ensure a demand, regardless of the overall market forces that may occur in 2021.
Razorback Country is poised to see some pains following the pandemic. CoreLogic predicts a contraction of home price growth to ~.6% by July 2021; by contrast, that number was ~4.3% by the end of June 2020 (CoreLogic). With such negligible gains, some markets are expected to see losses next year. Arkansas ranks among the top 5 states with underwater mortgages at 5%. Given that many mortgages are currently in forbearance, and that the projected national economic hardship will exacerbate the situation when federal mortgage safeguards expire at the beginning of the year, this number is likely to increase. Efforts to invest in the state may be hampered by the lack of viable buyers and the possibility that renters will be unable to make market rents.
Atlanta has been a red-hot market for years, and COVID’s impact likely will not have any bearing on that in 2021. Unlike some of the inflated demand pent-up from the pandemic, Atlanta’s population increased ~17% from 2010-2019, whereas the population of the US grew only by ~6% during the same time period (US Census Bureau). With the median home value of around ~$289K (Zillow), Atlanta remains an affordable option for investors, either in the fix and flip and investment rental space. The broader metro area also is experiencing the same demand, meaning that the strength of potential investment also extends into the exurbs, and will likely be sustained into 2021.
Nashville is leading the way for Tennessee to close out 2020 strong and setting a strong tone for the state for 2021. Zillow reports ~26% decline in inventory from the previous year, with sale prices up ~7% and rental prices up ~2% (Zillow). Zillow similarly predicts an increase in these figures into 2021. If opportunities for foreclosure fix and flips present themselves, either for sale or to rent, investors should jump at the opportunity. With vaccines on the horizon, the hospitality industry is poised for a resurgence- combined with lower taxes and relative affordability, the city is set for continued growth into 2021.
Auction.com shares some troubling signs about the state of the Kentucky housing market for primary homeowners, but an opportunity for investors. Kentucky had an above-average rate of foreclosure (56%) in September 2020, and that number remains high (Auction.com). Prices in Louisville are continuing to remain high, making things hard for affordability. As such, there could be a major opportunity for investors looking to purchase at auction and flip for a profit. Additionally, affordability might be an issue for some would-be buyers, so the rental market might so be a strong opportunity.
Like its northern twin, South Carolina is looking at a booming market. Unemployment is lower than relative to the rest of the country, with unemployment rising only 3% at the height of the pandemic, compared to low double-digits nationally (Greenville Business Magazine). Columbia, Charleston, and Greenville, for example, make up a tier of so-called “smaller cities” that are seeing traction based on affordability, relative safety from the COVID pandemic, and amenities of larger cities without the sky-high prices (Zillow). The average home price is just over ~$204K in the Palmetto State, making it a prime opportunity for investment, as prices are predicted to rise over 7% in the next year.
Realtor.com has projected Charlotte as the third-best housing market in the country for the coming year (Realtor.com). Prices are projected to soar ~10% into 2021, as new construction continues to keep pace with demand. Additionally, Charlotte is establishing itself as a hub for technology companies, ensuring that high-paying jobs will remain in the area. One interesting point of note, as well: millennials are expected to be the key demographic for driving growth and sales prices. One key factor: Charlotte’s affordability. All things being equal, Charlotte’s market will be thriving well into 2021.
Virginia’s housing market remains red-hot to close the year and to start the next. While COVID has fueled home sale trends, the demand in Virginia pre-dates the pandemic by several years (Richmond Association of Realtors), meaning that much of the demand is not artificial (WRIC). However, it has been impacted by the pandemic, which could pose some longer-term problems by overheating the market. For instance, renters are facing significant hardship as incomes are lost due to proactive and prolonged shutdowns in the state. As such, landlords are pressed with lower profit margins and to make ends meet (RAoR). Further complicating demand has been a delay in production and rising costs as goods struggle to get into the country. Homebuilding has gone from a two week to 15-week lead time on windows alone, drastically slowing the process; costs are up nearly $20K on a new build (HHHunt Homes, Virginia), as inventory is scarce and production capacity is reduced with social distancing guides in place.