Are real estate values going up or down? This question is being asked every day by our clients. Opinions vary as wide as Covid 19 is rampant across the globe.
When I started in real estate in 1987, we were nearing the end of a strong upward trend met by a significant decline in the late 80s. Everyone remembers 2008 – 2010 when prices crashed in every community in the U.S.
We clearly have a completely different set of circumstances today. Currently, my personal opinion is that residential real estate appears to be the one sector that could come out on top and not only not see deflationary pricing but see an uptick in prices. There is valid concern for the large number of job losses, business closings and other tragic happenings caused by the current pandemic. There are also other factors that show a clear case for residential real estate to hold strong.
Comparing Today’s Market with 2008-10
There have already been multiple reports by economists stating that real estate often goes up during a recession. It’s important to compare what happened in 2008 to where we are right now. In 2008, there was a sharp decline in values over the course of a couple of years. The main cause, as most know, was the subprime market issue on Wall Street. Pricing of residential real estate fell into the hands of corporations, banks and other government-guided recommendations.
Nearly every home we sold in those years was a short sale. For example, a home that had an $800,000 loan on it was worth approximately $750,000. The owner had no equity, or negative equity. A buyer would then offer $700,000 because it was a buyers’ market. The seller received the same amount if he accepted $700,000 or if he accepted $750,000. NOTHING. There was no motivation for a seller to try to get a buyer to pay more, so they accepted the $700,000. The bank took the loss, not the owner. Prices were in a free fall.
It’s Different Now
Today, homeowners have significant equity. Every dollar lower they sell their home for is a dollar out of their family’s savings. Sellers are not going to give up their equity easily. In addition, we still have all-time low interest rates making it extremely comfortable for buyers to borrow large amounts and have low payments.
Supply and Demand Drive Prices
Prior to Covid-19 , inventory levels were deemed low, and the situation hasn’t changed. The volume of sales is down; however, it is supply and demand that will have the biggest effect on values. What we’re seeing is that the inventory is not coming in at the normal pace that you would expect at this time of year. Meanwhile, buyer demand is still there, which is keeping up if not surpassing the supply that is coming out.
Based on this, we’re not seeing any significant change in property values. As previously stated, the volume of sales is down, inventory is only slowly coming to the market, and sales are starting to dramatically pick up. Every offer we wrote this week was a multiple offer situation. Listings that had no showings are getting 3-5 showings on the weekend. The markets where Shelter in Place restrictions are being lifted are seeing a dramatic pick up in showings and offers.
Buyers are looking at homes a bit differently as they realize that home is more than the place where you have dinner, go to sleep, wake up and go to work. It’s now your children’s school, play yard, your office, gym, and your favorite restaurant and bar. It’s also your place of worship. It’s everything now and will be for the foreseeable future.
Ed Kaminsky is licensed real estate agent at Strand Hill. Also the President and owner of ItzSold, Inc., a Real Estate marketing group based in Manhattan Beach, CA, with an annual sales volume of over $180 million. He is the President/CEO of SportStar Relocation, assisting professional athletes nationwide with their relocation and Real Estate needs. He owns and operates Premiere Estates Auction Company, which represents luxury property owners, developers, trusts, and financial institutions across the United States with professional auction services and sales. Finally, Ed is the President of Conserve Development, Inc., a design & development firm that reconstructions & revitalizes residential properties throughout the South Bay and surrounding Los Angeles areas.