Let’s Talk Real Estate – December 2020/January 2021
I just reviewed the 2020 Jackson County Real Estate Forecast we ran in the Review one year ago. In it, we predicted that in 2020 would see over 4,000 homes selling, with the median price surpassing the $300,000 mark. As I write this article, it looks like we will meet and exceed both predictions. 2020 will mark the greatest year the housing market has ever seen in Jackson County despite social unrest, record destruction from fires, a contentious election year, and a pandemic that caused the shutdown, temporarily and permanently, of hundreds of local business, and the resulting recession which is more severe than most of us have lived through.
Where is the real estate market headed now? What happens following a record year, during arguably, the worst year? Will we see the market crash, hold, grow slightly or explode? Let’s look at the EIGHT trends that will determine the 2021 local real estate market.
Upsizing homes has become essential for many. The pandemic has created pent-up demand. Many buyers are in the market purely because they’re working and schooling from home and realizing their space is no longer big enough, particularly now that the temperature is dropping and they can’t easily escape to their back patio to catch up on emails.
Add to this the “Delta Effect” where younger families have purchased homes in the $200,000-$300,000 price range that have seen the greatest price escalation. They can use this price escalation combined with low interest rates to upsize into a price category that has seen less price escalation. The “Delta Effect,” which means going from a first home that cost $300,000 to a second home that cost $500,000, has never been easier, financially speaking.
Working from home will increase the number of “Escapees” from large cities. As more and more employees are allowed to work from home rather than commuting to an office, they are realizing they can move outside cities where their offices are located to smaller, more rural areas where their purchasing power is greater. Their employers are quickly learning they can reduce the cost on office space as well as they can give “cost of living” adjustments to employees moving to cheaper areas. Now that this trend has started, I don’t personally believe it can be reversed.
Growing numbers of retirees will flee large cities for more rural locations. Southern Oregon has increased its draw for retirees, making them an important part of our housing industry. The number of Americans retiring daily has nearly doubled since 2000 and roughly 10,000 people turn 65 each day so this trend is not stopping anytime soon. You can see the effect of retirees on the city of Jacksonville that now has a population with an average age of 61 and which continues to see retirees flocking in.
Mortgage interest rates are at an all-time low, again! Interest rates on a 30-year fixed-rate loan were 2.8% as of Oct. 22, according to Freddie Mac. Although buyers are facing stiff competition, it’s not all bad news for them. Despite high home prices, record-low interest rates mean they’ll save a ton of money. Low interest rates boost a buyer’s home purchasing power. Despite double-digit increases in home prices in 2020 compared to 2021, home buyers are likely to actually pay slightly less on their mortgage each month, thanks to much lower mortgage rates.
$15,000 Tax Credit to help more Americans achieve homeownership. One of President-Elect Biden’s most popular plans is to provide first-time home buyers with a down payment tax credit of up to $15,000. As home prices have soared in recent years, this could be a big help to many cash-strapped buyers. The plan is to give first-time home buyers a down payment tax credit of up to $15,000 that they could use at the time of purchase.
Demand from fire victims. We have seen so many home buyers that are victims of the Almeda Fire enter the housing market in the 4th quarter of 2020. Because inventory is so low, we believe it will take a long time for all those homeowners to find a replacement home. Some of that demand will spill into 2021 causing increasing demand in 2021.
Housing inventory is getting lower. Although buyers are plentiful, the number of homes for sale keeps getting lower each quarter. We have seen up to 17 offers per home on homes priced in the mid $200,000 range and it’s not unusual to have multiple offers on homes priced in the $300,000 range and even multiple offers for homes in the $500,000 range. Because the number of homes available is currently at a record low, (less than a month’s supply) even if we see some improvement, which we expect, there will still be relatively few homes for sale in 2021 and not enough to meet demand. Some sellers are hesitant to sell unless they are sure they can find a replacement home.
Development of a Vaccine. We recently received the news that a COVID-19 vaccine being developed by Pfizer prevented more than 90% of infections in a study of tens of thousands of volunteers. This is the most encouraging scientific advancement so far and more encouraging news is likely on its way. When the coronavirus is behind us, we’ll see our economy improve, not for everyone, but for many of us, and an improved economy will cause more demand in the housing industry.
Conclusion. Demand for homes in Jackson County has never been higher, and when combined with record low interest rates, and maybe a $15,000 federal stimulus, there is only one obvious issue that can stop 2021 for becoming another record year and that’s supply. How many homes we sell will be contingent upon the inventory of homes that comes on the market for sale. There is one thing we know for certain: low inventory and high demand will drive-up home prices in 2021, so sellers stand to do very well.