Real Estate Outlook in 2021
Here is a brief recap of the 2020 real estate market and what to look forward to in 2021.
REAL ESTATE LOANS
Interest Rates
Overview: We’re closing the year with mortgage rates hitting yet another all-time low dropping below 2.7%.
Outlook: The current record lows are keeping homebuyers optimistic despite the pandemic, without signs of slowing down in the coming year. The most recent Fed meeting this month cemented the Fed’s thrust to keep market volatility under control and maintain liquidity through the purchase of mortgage-backed securities and treasuries.
Commercial Real Estate Loans
Overview: Major banks responded to the pandemic and the looming bankruptcies and defaults that the pandemic entailed by tightening credit standards and restricted new lending.
Outlook: As major banks pull back to prevent bad loan write-offs to creep up, we expect private money and regional lenders to step in. Commercial rentals and single tenant net lease properties can still look forward to favorable financing.
Retail, Office, and Hospitality
Overview: The pandemic forced many Americans to rethink how they live, shop, and dine in 2020. Hospitality, office buildings, and retail have all taken a hard hit due to these changes in societal behaviors forced by lockdowns.
Outlook: In 2021, shopping online, working from home, and only going to shops occasionally will likely endure until we have proven the new vaccines can offer adequate protection and become widely available. Loan options are limited for the hospitality, office, and retail segment. Repurposing properties can be a way to adapt to the lingering effects of the pandemic. Financing is available for this purpose.
THE RENTAL MARKET
Jobs
Overview: Temporary job losses are becoming permanent. Many Americans turned to government support and their own savings to keep up with their mortgage payments.
Outlook: People who can’t find gainful employment and default on their mortgages might lose their homes and become renters.
Evictions
Overview: Stimulus money helped support tenants to keep their rent payments up to date.
Outlook: At some point, the government’s stimulus programs are going to end. More evictions are expected in 2021 as eviction moratoriums also end.
Vacancy
Overview: Remote work setups have driven renters out of big, dense cities into smaller communities and suburbs. This leads to a higher vacancy in high-rent areas such as Silicon Valley, San Francisco, and Manhattan.
Outlook: We expect to keep on seeing an exodus of tenants moving out of the high-rent areas and the vacancies to persist. However, this also means the demand for rent in smaller communities will grow.
REAL ESTATE INVENTORY
Home Mortgages & Foreclosures
Overview: Forbearances temporarily prevented foreclosures.
Outlook: As life begins to restart, forbearances will eventually expire and people will have to begin paying their mortgages. Those who have lost their sources of income will be unable to make mortgage payments.
Rental Property Inventory
Overview: Although people moving out of densely populated urban areas are a long-term trend, the pandemic exacerbated the situation.
Outlook: There is a lot of uncertainty around how landlords in areas such as Brooklyn, Manhattan, Chicago, San Francisco, and Washington can cover their expenses. Higher vacancy, lower rental rates, and the inability to evict non-paying renters will force them to sell their properties. We expect a rise in apartments for sale in these highly urbanized areas.
Home Prices
Overview: We’ve seen an astronomical increase in home sales this year. The demand was largely driven by low-interest rates and the limited supply of homes for sale.
Outlook: It will take around 5-10 years before our supply problem is met. Prices should stabilize once we start easing out on COVID restrictions and supply is addressed.
POPULATION MIGRATION
Remote Work
Overview: Many jobs have gone virtual due to lockdowns. As many employers struggled to keep their business afloat, remote work setups helped limit their overheads. Employees are also less willing to pay a “location premium” to live near work as this has become irrelevant.
Outlook: Employers are beginning to offer remote work as an option permanently. We expect the trend to accelerate next year.
Big City Exodus
Overview: The country’s most expensive, and most densely populated cities have seen the highest movers especially during the first 6 months of the pandemic. People are moving to save on rent and also keep a safe distance from others.
Outlook: As more offices are being closed and online learning is still becoming an option, we expect more people to move to suburbs and smaller towns.
New Home Construction
Overview: New construction has increased due to the demand for housing especially in the “Smile States” such as Arizona, Texas, Georgia, and Florida.
Outlook: This trend is expected to continue and accelerate.
