Please join me on Zoom, Wednesday, January 27th at 6:30pm for a seminar titled How to Invest in Real Estate. If you have been thinking about investing, but never made the leap, or have already started dipping your toes in the water, then this class is for you. The first three registrants will also receive a copy of The Millionaire Real Estate Investor.
Why Home Prices Will Continue to Rise in the Corvallis- Area Market in 2021
Last week we were reflecting on 2020, but now is the time to look forward- to what 2021 and beyond will bring. As a real estate broker focusing on Corvallis, Albany, Philomath and Lebanon markets, my attention is on what we will see for home prices. I get to speak with many buyers and sellers on a daily basis and I get to hear many opinions about where the market is heading. One opinion that I hear consistently is that homes are overvalued right now, and that “I am waiting for home values to decline,” to purchase or invest. They make some good points and many are still reeling from the ’08/’09 housing bubble. However, I believe over the next few years we will continue to see home values rise in Linn & Benton counties due to low interest rates and supply versus demand. Let me elaborate:
Interest Rates, The “X Factor”
The largest factor in Corvallis-area (and nationally) home values increasing drastically in 2020 has been consistently lower mortgage interest rates over the past year. This is also the largest variable (and potential flaw in my analysis if the trend reverses due to Fed action). Lower rates have actually increased affordability for buyers. The math is that for every 1% difference in mortgage rates, buying power changes by 10%.
Essentially, this 10% change means that payments on homes for $300k at 4% are the same as a $330k home at 3%. Well, guess what?! Rates are down almost exactly 1% from 3.72% in December 2019 to 2.68% in December 2020. The Fed has indicated that it will continue to use monetary policy to keep rates low in 2021. Many lenders that I speak to believe that we will continue to see rates creep lower than the 2.68% average last month due to slowing of refinances, causing volume to decrease and more pricing competition needed between lenders.
More Demanding Demand
There are a ton of factors that will continue to drive demand locally. Instead of writing a book, let me list a few:
–Pent up demand. Anecdotally, most Corvallis-area homes on the market locally are getting multiple offers and selling quickly. This has accelerated through the year and Q4 2020 offered the lowest inventory locally in decades.
–Migration patterns to the Corvallis area are accelerating. We have had a positive net migration to Oregon for many years, and this has increased with Baby Boomers retiring here. Now, work from home has given all generations flexibility to move to smaller and more desirable and more affordable communities like Albany, Philomath, Lebanon, and even Corvallis(California still has a massive affordability problem).
-Millennials are now homebuyers en masse. While still buying homes at lower rates than previous generations, Millennial home ownership rates have increased recently and interest in home ownership has gone up with COVID, a trend that has not passed Linn and Benton counties by, in my anecdotal experience with young buyers this past year.
Y’all Got Any of that Supply?
-Inventory, the number of homes available for sale is at a once-in-a-generation low. This is mainly due to higher demand from rates and COVID-related reluctance to sell.
-New construction is not enough to meet demand nationally and locally. This is caused locally by decades of restrictions on zoning and development, as well as the skyrocketing cost of land, materials and labor. Although it often appears there is lots of new construction locally when driving by the few developments going in, those are going to be a band-aid on the proverbial bullet wound.
What About Foreclosures Due to Financial Hardship?!
This is likely a topic for another blog post. Basically, I don’t believe there will be a high amount of foreclosures in the next few years. We have had close to zero locally in the past so it is likely that will increase marginally this year and next. However, this is not enough to impact the local market and absolutely nothing like we saw on a national scale in the Great Recession. Here are a couple of reasons:
-Record level of home equity and a strong market mean that most homeowners that can no longer afford payments are able to sell their homes easily. Tighter lending requirements mean that almost all homeowners have at least 10% equity in their homes. At the end of Q3 2020, Oregon had the lowest percentage of homeowners in the nation with negative home equity (1.4%), far less than the national average of 3.7%.
-CARES Act and forbearance are generally working as intended and relatively low numbers of homeowners are using forbearance options. Mortgage delinquencies (30+ days) are improving nationally. Oregon is lower than national average, 4th best in the nation, at 4.33%. The national average is 6.33%.
-Oregon is lower than average for national unemployment, 6% versus 6.7% as of November 2020. Linn County is in line with the state average at 6% and Benton County has significantly lower unemployment than the state at 4.2%.
-Homeowners were disproportionately unaffected by the pandemic versus renters. The pandemic has highly affected the service, travel, and transportation industries. These industries have a higher amount of younger and lower income workers, who are less likely to be homeowners. We also have a lower percent of our local economy based on those industries versus the national average.
Don’t take it just from me, the experts are projecting a 5.5-6% rise in home prices nationally. Rising and falling markets create the most opportunities for investors. If you’d like to discuss opportunities and get the pulse of local real estate investors, please join our free, local real estate investment group on Facebook and join us for monthly meeting on Zoom: https://www.facebook.com/groups/1002835240167180