A group of housing experts and economists that were surveyed by the National Association of Realtors is forecasting that the median home price in the U.S. will rise by 8.0% in 2021 and by 5.5% in 2022. Real estate prices are indeed rising, but not necessarily in your neighborhood. In October 2020, the median existing home price was $313,000 – more than 16% higher than the same time in 2019. However, expensive areas like San Francisco and New York City have seen a jump in listings and a drop in prices. San Francisco homes for sale have almost doubled this year (Zillow.com), which has softened prices by at least 5%. Manhattan prices are also down 5% on the year, with sellers accepting bids far below the asking price. According to StreetEasy.com, Manhattan home sales were 88.6% of the asking price – the lowest on record, in October of 2020.
The nation is being led by ten hot markets, according to NAR, in states like Georgia, Idaho, South Carolina, Texas, Iowa, Indiana, Wisconsin, Arizona, Utah and Washington. See the city list directly below.
What is Spurring the Migration?
Housing unaffordability is one of the key factors contributing to the suburban migration. If your paycheck is going mostly for rent or a mortgage in San Francisco, and you’re now working at home, why not try Arizona, Idaho or even Utah instead? Instead of making the landlord rich, perhaps you can start contributing to your own equity. As Lawrence Yun, the chief economist of NAR explained, "Some markets have been performing exceptionally well throughout the pandemic and they'll likely carry that momentum well into 2021 and beyond because of strong in-migration of new residents, faster local job market recoveries and environments conducive to work-from-home arrangements and other factors."
Will Work from Home Trends Persist?
There are some jobs, such as essential workers are doing right now, that must be done in-person. NAR predicts that working from home will be 18% in 2021 and 12% in 2022, down from 21% in 2020. Many technology CEOs are embracing the Work from Home trend, however. Twitter and Square’s CEO Jack Dorsey has told employees that they can work from home in perpetuity – even after offices open up again. (Certain jobs, like server maintenance, must be done in person, however.) CNBC reports that 95% of Facebook staff are currently working from home. Facebook CEO Mark Zuckerberg has indicated that up to 50% of the Facebook work force may be working from home going forward.
If the tech Work from Home trend persists, that might be the best thing that ever happened to real estate affordability for Silicon Valley, Silicon Beach, Silicon Alley and every other tech hub that has seen real estate prices and rent costs soar over the last nine years. (The bottom for real estate prices on a nationwide basis was in 2011.) As you can see in the chart below, provided by AttomData, in many of these expensive cities, the average worker would be putting more than 50% of her salary into housing.
San Francisco and Manhattan
San Francisco and Manhattan are two of the least affordable cities in the U.S. According to AttomData.com. In San Francisco, workers have been priced out of home ownership for years, where the average worker would need 106% of their income going toward a home purchase. 42.5% of wages are needed to purchase in Boulder, while 67% of the salary goes to housing in New York, even with the 5% drop. (Manhattan unaffordability is much higher than the metropolitan area.)
Seattle, Los Angeles, Denver, Boulder, Miami
So far Los Angeles, Washington DC, Seattle, Denver and Miami are not seeing the same flood of new listings that have swamped San Francisco and Manhattan, even though housing affordability is a crisis with home costs above 1/3 of the average salary. (Attomdata’s interactive map allows you to see the problem county by county.) However, the current moratorium on evictions and foreclosures is likely masking a deeper problem. The Mortgage Bankers Association reported that over 6 million renters and homeowners missed a payment in September of 2020.
How Accurate are Forecasts?
In January of 2006, in an NAR blog, Robert Freedman predicted a price appreciation of 5.3% for the year, down from 12.4% in 2005. In January of 2007, in a blog entitled “On the Road to Recovery,” Freedman wrote, “The bad news is mostly behind us.” He predicted that many markets would pick up in 2007 and that a full turnaround would occur in 2008. Price growth was predicted to inch down to 1.7% in 2007, after a modest increase of 1.9% in 2006.
So, what really happened? Well, the Great Recession. Home prices plunged by 25% on a nationwide basis between 2006 and 2011. If you were in a bubblicious area like Las Vegas, Miami or Phoenix, home values plunged by more than half. Over 10 million homes were lost through deed in lieu, short sales, foreclosures and auctions. That process was hellish for everyone who went through it. Some didn’t survive the stress.
What Could Go Wrong?
Over 50% of Airbnb Hosts indicated that they are using the income provided by sharing their home to pay their own rent or mortgage. If the travel industry and conference marketplace do not return to pre-pandemic levels, this is another cohort of the housing market that might be distressed.
Real estate predictions have been notoriously wrong – perilously wrong for late-stage purchasers. The industry experts simply have a hard time predicting a weakness in housing prices. While the forecasts include current supply and appetite in their forecasts, if they fail to properly account for shadow inventory, distressed consumer debt loads, macro economic weakness and structural shifts in the travel and hospitality industry (which affects the viability for at least 2 million homeowners), then the predictions could be way off. Again.
The fundamentals of housing are more important now that ever. Buy only what you can afford, and only at a good price (not at the top of the market). If you are struggling to make ends meet, or spending more than 28% of your income on housing, then embracing a new housing solution that leaves more money in your wallet will go a long way to transforming your life. If you are siphoning money from your retirement account to stay in a home you really can’t afford, the sooner you adopt a better plan that preserves your life boat (your retirement wealth) the better. (There are solutions. However, if you are getting your budgeting strategy from the debt collector, you’ll never learn them before it’s too late.) Now is the perfect time to do this analysis, while real estate is high. If you wait for the headlines that the prices have fallen, it's always too late to protect yourself.
You can read about real estate solutions in The ABCs of Money. You can learn about them in our New Year, New You Financial Empowerment Retreat Jan. 16-18, 2021 and in my Real Estate Master Class on January 23, 2021. Call 310-430-2397 or email info@NataliePace.com to learn more.
Are you interested in an easy-as-a-pie-chart nest egg strategy that earned gains in the past two recessions and has outperformed the bull markets in between? Call 310-430-2397 or email info@NataliePace.com to register for our Jan. 16-18, 2021 Online Investor Educational Retreat.
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About Natalie Pace
Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 4th edition of The ABCs of Money was released on October 17, 2020.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She blogs on Huffington Post and Medium, and is a frequent guest contributor to national news shows and magazines. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.