Well, I’m glad this year is over, aren’t we all? For many, the suffering will unfortunately continue. For most, however, I believe 2021 will be a year filled with possibilities. Case-Shiller just reported another monthly increase to property values, with the year over year the most since 2014. Never one to shy away from attempting to be a soothsayer, I will do so again today and down the road we can look back and see how I did. In case you don’t wish to read any further, spoiler alert, the real estate market will remain hot and prices are going to rise.
Inventory, or lack thereof, will continue to be the story. There are not enough available homes to satisfy demand. When demand eclipses supply, prices rise.
Prediction #1 therefore, is that prices are going to continue to rise to new heights. That said, all real estate is local so a quick look at our local market (Check the Conejo Valley’s active listings here!). In reviewing the past 7 years, inventory for our little valley is always lowest January 2nd. For those of you who follow me, you know I track the numbers closely. The fewest number of actively available homes for sale in the Conejo Valley at year end since 2014 was 302 and the highest was 415. There were 414 homes available at the start of 2020. Today we have a whopping 194 units for sale, less than half. I’m no rocket scientist, but in an area that normally sells 2200+ home a year, to have less than 10% as available inventory to start the year, it’s easy to predict prices are going to continue to rise in the Conejo Valley and I expect that to be true everywhere as well. By the way, if you are looking for a real estate tip and a market that is lagging, look no further than Las Vegas which according to Shiller rose the most modestly of any Metropolitan Statistical Area (MSA) in the country. Obviously gaming, travel and leisure are the driving forces of Las Vegas economics. Expect a disproportionate rebound there once the virus is under control and life returns to normal.
Prediction #2, interest rates will stay low. Why do rates go up? Inflation. Is there any evidence of substantive inflation? Not really, certainly not wage inflation and most definitely not with unemployment over 9%. Fed Chairman Powell has said, rates will remain at zero and the Fed has increased its threshold or tolerance of inflation to above its historical target of 2%. In other words, there must be a substantial increase in inflation – not just the threat or risk of it – to force the Federal Reserve to raise rates in the next 1-2 years. I would argue in fact that serious inflation is a thing of the past and long-term low rates a thing for the foreseeable future. Every country is spending and printing money in response to the pandemic and I believe inflation is relative: currency to currency, labor market to labor market, commodity to commodity. Think about it, since WWII there’s only been a couple long periods of sustained and substantial inflation. Right after the war itself and 1973-1983 right? Triggered by the oil embargo and Nixon’s de-coupling of the dollar from gold (the elimination of the Gold Standard) this period is really the only time inflation has ever really been “out of control.” Sure, there have been moments in time like the mid 1990’s, mid 2000’s where the economy ran hot but this was relatively short lived. These were times where the threat of inflation led the Fed to move rates slightly higher and that knocked inflation down right quick (Connect with me on LinkedIn). You could argue that the lack of substantive inflation over the past 20 years is because a hawkish Fed controlled the economic environment as they are chartered to do and they avoided it but at the expense of growth. I would argue that painfully low growth and low inflation is a result of globalization and in particular the globalization of labor. You could even trace it to China’s entrance into the WTO if you want to really drill down. Inflation is worth keeping an eye on for sure, but globalization inherently has kept costs down and forced productivity higher, which in turn has eliminated the threat of substantive inflation. Lower rates mean prices will continue to rise.
Prediction #3, demographics and recent trends will continue to conspire to keep inventory low and demand high. Millennials will continue to buy and keep demand high. Heck, they are just starting household formation. They will be driving home buying for the next 15 years and to channel The Carpenters, they’ve only just begun (View my website here). Simultaneously seniors will continue to age in place and not sell which further constrains inventory and finally new construction will fail to keep up with demand, especially true here in California. I don’t think anyone will argue with this. Axiom, theorem or conjecture, call it what you will, I’m going with “it’s the plain and simple truth.” Increased demand in the absence of increased supply means prices are going to continue to rise.
Prediction #4 is that by this time next year, unemployment will be half of what it is now. Still not to pre-pandemic levels but much better than it is today. Hopefully, the new administration can push through some real relief for states so government doesn’t have to lay off a bunch of people and some specific help for tenants and landlords. Lower unemployment and economic relief for those hurting the most also means foreclosures will likely be held at bay and all this means, you got it, prices will continue to rise.
There you have it, my best guess for 2021. Time will tell if I’m right, but I think everything about this next year suggests the real estate market is going to be strong and yes, prices are going to rise. If you’d like to talk in more detail about the market and my predictions, you can contact me here.