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Is the Real Estate Market Going to Crash?

 

 

While many areas of the economy have contracted, the housing market has stayed remarkably strong. But can the good news last?

When COVID-related shutdowns began in March, real estate brokers and clients scrambled to respond to the shift. Record-low interest rates caused some lenders to call a halt to new underwriting, and homeowners debated whether or not to put their houses on the market. However, those first days of uncertainty ushered in a period of unprecedented demand in the U.S. real estate market, which ended the year with increasing average home prices (up 13.4% from the previous year) and shrinking days on market (13 fewer than in 2019).1

 

Now, as the spring market approaches, you may be wondering whether the good times can continue to roll on. If you’re a homeowner, should you take advantage of this opportunity? If you’re a buyer, should you jump in and risk paying too much? Below we answer some of your most pressing questions.

 

 

How is today’s market different from the one that caused the 2008 meltdown?

 

At the beginning of the pandemic, fears of an economic recession and an ensuing mortgage meltdown were top of mind for homeowners all across the country. For many buyers and sellers, the two seemed to go hand in hand, just as they did in the 2008 economic crisis.

 

In reality, however, the conditions that led to 2008’s recession were very different from those that triggered the current downturn—and this time, the housing market is the source of much of the good news.2 This is in line with historical patterns, as housing prices traditionally hold steady in the face of recession, with homeowners staying put and investors putting their money into bricks and mortar to ride out uncertainty in the stock market.

 

This time around, because of lessons learned in 2008, banks are better funded, homeowners are holding more accrued equity, and, crucially, much of the economic activity is focused on financial factors outside the housing market. As many industries quickly pivoted to work-from-home, early fears of widespread job loss-related foreclosures have failed to materialize. Federal stimulus payments and the Paycheck Protection Program also helped to offset some of the worst early effects of the shutdown.

 

 

Are we facing a real estate bubble?

 

A real estate bubble can occur when there is a rapid and unjustified increase in housing prices, often triggered by speculation from investors. Because the bubble is (in a sense) filled with “hot air,” it pops—and a swift drop in value occurs. This leads to reduced equity or, in some cases, negative equity conditions.

 

By contrast, the current rise in home prices is based on the predictable results of historically low interest rates and widespread low inventory. Basically, the principle of supply and demand is working just as it’s supposed to do. In addition, experts predict a strong seller’s market throughout 2021 along with increases in new construction.3 This should allow supply to gradually rise and fulfill demand, slowing the rate of inflation for home values and offering a gentle correction where needed.

Effects of low interest rates

According to Freddie Mac, rates are projected to continue at their current low levels throughout 2021.4 This contributes to home affordability even in markets where homes might otherwise be considered overpriced. These low interest rates should keep the market lively and moving forward for the foreseeable future.

Effects of low inventory

Continuing low inventory is another reason for higher-than-average home prices in many markets.5 This should gradually ease as an aggressive vaccination rollout and continuing buyer demand drive more homeowners to move forward with long-delayed sales plans and as new home construction increases to meet demand.6

 

 

Aren’t some markets and sectors looking particularly weak?

 

One of the big stories of 2020 was a mass exodus from attached home communities and high-priced urban areas as both young professionals and families fled to the larger square footage and wide-open spaces of suburban and rural markets. This trend was reinforced by work-from-home policies that became permanent at some of the country’s biggest companies.

 

Speculation then turned to the death of cities and the end of the condo market. However, it appears that rumors of the demise of these two residential sectors have been greatly exaggerated.

 

With the first vaccine rollouts, renters have begun returning to major urban centers, attracted by the sudden rise in available inventory and newly discounted rental rates.7 In addition, buyers who were previously laser-focused on a single-family home responded to tight inventory by taking a second look at condos.8 While nationwide condo prices continue to lag behind those of detached homes, they’ve still seen significant price increases and days on market reductions year over year.

 

In addition to these improvements, the 2020 migration has spread the economic wealth to distant suburban and rural enclaves that normally don’t benefit from increases in home values or an influx of new investment. As many of these new residents set up housekeeping in their rural retreats, they’ll revitalize the economies of their adopted communities for years to come.

 

 

How has COVID affected the “seasonal” real estate market?

 

Frequently, the real estate market is seen as a seasonal phenomenon. However, the widespread shutdowns in March 2020, coming right at the beginning of the market’s growth cycle in many areas, has led to a protracted, seemingly endless “hot spring market.”

 

While Fannie Mae’s chief economist Douglas Duncan predicts slower growth from 2020’s historic numbers, the outlook overall is positive as we embark on the 2021 spring selling cycle.9 Duncan anticipates an additional lift in the second half of 2021 as buyers return to business as usual and look to put some of their pandemic savings to work for a down payment. Thus we could be looking at another longer-than-usual, white-hot real estate market.

 

 

How will a Biden administration affect the real estate market?

 

Projected policy around housing promises to be a boost to the real estate market in many cases.10 While some real estate investors bemoan proposed changes to 1031 Exchanges, the Biden plan for a $15,000 first-time homebuyer tax credit aims to increase affordability and bring eager new home buyers into the market. In addition, Biden-proposed policy pinpoints low inventory as a primary driver of unsustainable home values and is geared toward more affordability through investments in construction and refurbishment.

 

Overall, according to most indicators, the real estate news looks overwhelmingly positive throughout the rest of 2021 and possibly beyond. Pent-up demand and consumer-driven policies, along with a continued low-interest-rate environment and rising inventory, should help homeowners hold on to their increased equity without throwing the market out of balance. In addition, the increase in long-term work-from-home policies promises to give a boost to a wide variety of markets, both now and in the years to come.

 

 

STILL HAVE QUESTIONS? WE HAVE ANSWERS

While economic indicators and trends are national, real estate is local. We’re here to answer your questions and help you understand what’s happening in your neighborhood. Reach out to learn how these larger movements affect our local market and your home’s value.

 

 

Sources:

  1. Realtor.com -
    https://www.realtor.com/research/december-2020-data/
  2. New York Magazine -
    https://nymag.com/intelligencer/2020/06/why-this-economic-crisis-wont-be-as-bad-as-2008.html
  3. Washington Post -
    https://www.washingtonpost.com/business/2021/01/11/2021-housing-market-predictions/
  4. Freddie Mac -
    http://www.freddiemac.com/research/forecast/20210114_quarterly_economic_forecast.page?
  5. Wall Street Journal -
    https://www.wsj.com/articles/housing-market-stays-tight-as-homeowners-stay-put-11611226802?mod=re_lead_pos1

 

5 Inspiring Home Design and Remodeling Trends for 2021

 

 

We’ve all spent a lot more time at home over the past year. And for many of us, our homes have become our office, our classroom, our gym—and most importantly, our safe haven during times of uncertainty. So it’s no surprise to see that design trends for 2021 revolve around soothing color palettes, cozy character, and quiet retreats.

 

Even if you don’t have immediate plans to buy or sell your home, we advise our clients to be mindful of modern design preferences when planning a remodel or even redecorating. Over-personalized or unpopular renovations could lower your property’s value. And selecting out-of-style fixtures and finishes could cause your home to feel dated quickly.

 

To help inspire your design projects this year, we’ve rounded up five of the hottest trends.  Keep in mind, not all of these will work well in every house. If you plan to buy, list, or renovate your property, give us a call. We can help you realize your vision and maximize the impact of your investment.

 

 

1. Uplifting Colors

 

Colors are gravitating toward warm and happy shades that convey a sense of coziness, comfort, and wellbeing. This year’s palettes draw from earthy hues, warm neutrals, and soothing blues and greens.1

 

While white and gray are still safe options, expect to see alternative neutrals become increasingly popular choices for walls, cabinets, and furnishings in 2021. For a fresh and sophisticated look, try one of these 2021 paint colors of the year:

 

  • Aegean Teal (coastal blue) by Benjamin Moore

  • Urbane Bronze (brownish-gray) by Sherwin-Williams

  • Soft Candlelight (muted yellow) by Valspar

 

On the opposite end of the spectrum, indigo, ruby, sapphire and plum are showing up on everything from fireplace mantels and floating shelves to fabrics and home accessories. These classic, rich hues can help bring warmth, depth, and a touch of luxury to your living space.

 

To incorporate these colors, designers recommend using the “60-30-10 Rule.” Basically, choose a dominant color to cover 60% of your room. For example, your walls, rugs, and sofa might all be varying shades of beige or gray. Then layer in a secondary color for 30% of the room. This might include draperies and accent furniture. Finally, select an accent color for 10% of your room, which can be showcased through artwork and accessories.2

 

 

 

2. Curated Collections

 

After a decade of minimalism, there’s been a shift towards highly-decorative and personalized interiors that incorporate more color, texture, and character. Clearly-defined styles (e.g., mid-century modern, industrial, modern farmhouse) are being replaced by a curated look, with furnishings, fixtures, and accessories that appear to have been collected over time.3

 

This trend has extended to the kitchen, where atmosphere has become as important as functionality. The ubiquitous all-white kitchen is fading in popularity as homeowners opt for unique touches that help individualize their space. If you’re planning a kitchen remodel, consider mixing in other neutrals—like gray, black, and light wood—for a more custom, pieced-together look. And instead of a subway tile backsplash, check out zellige tile (i.e., handmade, square Moroccan tiles) for a modern alternative with old-world flair.4

3. Reimagined Living Spaces

 

The pandemic forced many of us to rethink our home design. From multipurpose rooms to converted closets to backyard cottages, we’ve had to find creative ways to manage virtual meetings and school. And designers expect these changes to impact the way we live and work for years to come.

 

For example, some home builders are predicting the end of open-concept floor plans as we know them.5 Instead, buyers are searching for cozier spaces with more separation and privacy. Cue the addition of alcoves, pocket doors, and sliding partitions that enable homeowners to section off rooms as needed.4

 

The necessity of a home office space is also here to stay. But what if you don’t have a dedicated room? Alternative workspaces have become increasingly popular. In fact, one of the biggest trends on Pinterest this year is the “cloffice”—essentially a spare closet turned home office. Searches for “home library design” and “bookshelf room divider” are on the rise, as well.6

 

4. Staycation-Worthy Retreats

 

With travel options limited right now, more homeowners are turning their vacation budgets into staycation budgets. Essentially, recreate the resort experience at home—and enjoy it 365 days a year!

 

Bedrooms should provide a soothing sanctuary for rest and relaxation. But this year, minimalist decor and muted colors are giving way to bolder statement pieces. To create a “boutique hotel” look in your own bedroom, start with a large, upholstered headboard in a rich color or pattern. Layer on organic linen bedding and a chunky wool throw, then complete the look with a pair of matching bedside wall lights.7

 

Carry those vacation-vibes into your bathroom with some of the top luxury upgrades for 2021. Curbless showers and freestanding tubs continue to be popular choices that offer a modern and spacious feel, and large-format shower tiles with minimal grout lines make clean up a breeze. Add a floating vanity and aromatherapy shower head for the ultimate spa-like experience.4

5. Outdoor Upgrades

 

From exercise to gardening to safer options for entertaining, the pandemic has led homeowners to utilize their outdoor spaces more than ever. In fact, backyard swimming pool sales skyrocketed in 2020, with many installers reporting unprecedented demand.8 But a new pool isn’t the only way homeowners can elevate their outdoor areas this year.

 

The home design website Houzz recently named 2021 “the year of the pergola.” They’re a relatively quick and affordable option to add shade and ambiance to your backyard.4 Another hot trend? Decked-out, custom playgrounds for exercising (and occupying) the youngest family members who may be missing out on school and extracurricular activities.9

 

But don’t limit your budget to the backyard. Landscapers are reporting an increase in front yard enhancements, including porch additions and expanded seating options. These “social front yards” enable neighbors to stay connected while observing social-distancing guidelines.10

 

 

DESIGNED TO SELL

 

Are you contemplating a remodel? Want to find out how upgrades could impact the value of your home? Buyer preferences vary greatly by neighborhood and price range. We can share our insights and offer tips on how to maximize the return on your investment. And if you’re in the market to sell, we can run a Comparative Market Analysis on your home to find out how it compares to others in the area. Contact us to schedule a free consultation!

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Energy Wise Realty, Inc
2238 Bayview Heights Dr STE E
Los Osos, CA 93402
Phone: 805 528-7130 805 528-7130
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