It’s now been one year since the World Health Organization (WHO) and the Centers for Disease Control and Prevention (CDC) declared the COVID-19 outbreak as a pandemic. The official declaration allowed all levels of government, from the federal government down to city levels, to initiate various forms of restrictions and shutdowns in an effort to combat it.
Some of the actions taken appeared to be an honest attempt to combat COVID, but as time has passed, the imposed restrictions seemed unimaginative and outlived their effectiveness. Close to 100,000 businesses permanently closed. Almost 15% of the workforce was unemployed in April, 2020. By the end of the year, the unemployment rate decreased to 6.2%, but still higher than the pre-COVID rate of 3.5%.
Thankfully, all levels of government are in the process of relaxing the restrictions, a positive sign for people and businesses who have endured throughout and been challenged financially.
The Real Estate Market Performed Well in 2020
By the end of 2020, Median Market Prices for single-family homes rose to $625,350.00 in Los Angeles, an increase of 13.7% year-over-year. The sales volume of single-family homes also rose by over 30%.
While commercial properties and “other” types of real estate rose at a rate less than single-family homes, they still experienced positive increases in both market price and sales volume even though some commercial landlords were having difficulty collecting the monthly rent from tenants.
There are two reasons that that the real estate market has performed well over the past year in spite of COVID:
- Historically low interest rates. In January, 2021, the 30-year interest rate was 2.65%, down from 3.74% during the last week of 2019. In 2020, many homeowners and commercial property owners took advantage of the low interest rates by refinancing their properties and, in the process, reduced their monthly expenses
- Lack of real estate inventory (Properties Listed for Sale) relative to buyers making offers in the marketplace. Excess demand relative to lower supply caused real estate prices to increase
Interest rates have risen slightly since the start of 2021 but remain at near historic lows. Moreover, market indicators show that there’s very little chance of interest rates rising to a level that would be detrimental to the economy and more specifically to the real estate market.
There are Still Challenges to Overcome in 2021
There are some possible events on the horizon that could have negative effects on the real estate market. Homeowners and renters could be required by mortgage lenders and landlords to begin paying back deferred mortgage payments and deferred rental payments.
We believe that a workable plan will be reached between real estate borrowers and lenders, and tenants and landlords that shouldn’t prove to be an overbearing financial burden, since mortgage lenders and landlords will only win when borrowers and tenants are not in financial binds.
In addition, there will be a reduction in many of the government stimulus programs moving forward, but the “Sunsetting” of such programs will be more than offset by opening and expansion of many categories of businesses and the related increased job availability which should reduce the unemployment rate.
Westar Lending Group originates residential and commercial hard money loans for people looking to purchase real estate, refinance properties or take cash out for a business or investment opportunity. We anticipate that real estate prices will most likely not continue to rise at the same rate as they have over the past year, but overall, the real estate market should continue to remain strong in 2021. If you’re thinking of purchasing another property, consider making that move in 2021.
For example, if a great business or investment opportunity is presented, it’s possible to access the needed equity for a loan from an owned property. However, proceed with the upmost care and caution whenever reviewing or contemplating any possible investment opportunity.
We believe the following market Indicators will continue to remain strong in 2021:
- Low mortgage interest rates
- Low property inventory (MLS listings)
- Excess buyer demand
- Reduced COVID restrictions
- Increased economic activity
- Possible increased consumer confidence
Nearly 100,000 establishments that temporarily shut down due to the pandemic are now out of business
Monthly unemployment rate in the United States from February 2020 to February 2021
Mortgage Rates Little Changed