Spring 2020 Real Estate Newsletter
I hope this newsletter finds everyone safe and well. It certainly has been an interesting spring to say the least, so far, and I'm getting a lot of questions about what is going on in the market, so I thought I would take a moment to discuss the current trends that we are seeing, so people can assess what makes sense for them.
Interest Rate Impacts
Normally, interest rates drive a big chunk of purchase behavior in Real Estate. I'm going to start with this part as it affects all the other sections. People keep an eye on rates and often make decisions around the rates that are available. Rates have gotten very low, touching or even exceeding the rates available during the financial crisis. They weren't very high to begin with, but it's hard to argue with these rates. I have - on occasion - seen 30 year mortgages with a 3.0% rate for purchases on conforming mortgages, and some 10 year ARM's have dropped below 3.0. With many economists predicting a rise in inflation, locking in these rates for a longer term is an insanely good idea. I do not know if inflation will pick up, but I do think that it will pick up when people least expect it, as that is the way of things. There are a number of arguments for and against the rise of inflation, but the bulk of inflation arguments is around the influx of money into the world financial system. The arguments against inflation are the past 20 years, and the low inflation rates that have persisted despite several periods of significant monetary injections.
Links: I linked an article from Barrons about potential inflationary environments. But there are lots of others.
Current Real Estate Market for Home Sellers and Home Buyers
When the stock market crashed, I got a number of calls from buyers and sellers that were in process. They all wanted to know, how will this affect the market? I suspected that there would be fewer buyers, but also there would be fewer sellers, and only if there was a big imbalance between the two would there be a big change in market prices. So far, that suspicion has been largely held up. We have seen the sub 500 market stay quite brisk, as more sellers and fewer buyers have stayed away from that market. Although things are moving slower (home selling in a weekend now take 8 days or so), there is good traffic and quick transaction for many homes in this price range. This makes sense, many people in this price point "have to" move. The higher levels of the market, mostly with people who "want to" move, has seen fewer buyers, but there are still more buyers than there are sellers. Overall, I'm not seeing a lot of different price action. I see most homes selling where prices were 3-5 months ago, and no real change, but there is still a lot of pressure on prices on the lower end. To see examples, you can check my recent reports in Milford, and here in Natick. It is worth noting, however, that the prices in the most expensive towns were under pressure before the pandemic, so it is hard to see if this is a continuation of the trend or a true pandemic impact. Maybe a bit of both.
There have been some changes, to be sure. If you'd like to talk about what we can do for your situation, please call, but note generally in this market we are doing the following types of changes.
Open Houses: No longer a group activity, OH are being broken into individual appointments, usually about 15 minutes or so. Handwashing before and after is also a common approach, and of course the state's Mask order remains in effect. Basically, most showings are now private showings, and seeing a home is more complicated, but by and large folks are having success with this.
Depending on each home, certain additional precautions can be made, whether you are showing to sell or purchasing. It's the new normal! Overall though, I think agents and agencies are doing an excellent job coming up with new parameters for keeping things going. Everyone's risk level is different, so these solutions won't work for everyone, but for a lot of people, they can keep things moving.
Current Real Estate Market for Investors
If home purchasing is driven by interest rates, real estate investing is even more so. Right now the inventories for investment property are extremely low until you get far out into the suburbs of Worcester and prices for investment property are at huge jumps over last year (in Worcester county) and remain at very optimistic levels for for counties to the East. When I say optimistic, I mean at the prices they sell, it is hard to generate meaningful cash flow for the risk incurred, and that landlords are betting on rents rising at a good clip over the next 2-3 years. With rising unemployment, and a large rental base that was getting priced out of the market inside and around 128, I think that there could be a significant migration out of these areas impacting rents - as is typical in economic downturns. If your income isn't going up, then you move, and try to control your expenses. While this is probably a positive for properties 50 miles or more away from Boston, the impact inside that radius is unclear. It is certainly possible, if the economic impacts of the pandemic continue, that over-leveraged investors may have to sell some inventory. Right now, that inventory would likely be gobbled up, but a sustained increase in selling would impact prices in this part of the market. Any obvious drop in rents would do it also, but either of those are likely months away at this point. In the meantime, with the drop in interest rates, I expect to see continued pressure on this segment.
Think about Remodeling
If there are DIY (do-it-yourself) projects you've been putting off, now is a great time to do them. Painting rooms, changing knobs or fixtures to give places a fresh look can all be done. It isn't clear when the economy will open up, but if you have a vacant house to fix, this is a great time to hire contractors. Generally, their business has been hit hard, and although I don't see prices for work dropping yet, you should be able to find generally responsive contractors while business is off. If you have a tenant move out, it is a good time to consider renovating your apartment for this reason. If you have questions about how to get creative here, contact me and we'll see what we can come up with.
Just for Fun!
I am usually taking my own advice, and I just recently finished a trim up grade in my dinning room. I added Board and Batten - a type of wainscoting - and it came out pretty good! Here is a link to the whole project, with before and after pictures, tools needed, and cost information. This is a style that has been getting more popular, and you'll probably see it when you're out and about!