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.
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.