Freddie Mac has released its quarterly real estate predictions for 2020 and 2021. They are predicting real estate will appreciate (nationwide) about 0.4% in 2020 and 0.7% in 2021. In other words, basically flat. The predictions are found in the following article:
http://www.freddiemac.com/research/forecast/20200413_quarterly_forecast_housing_challenges.page?
Nobody has a crystal ball and making real estate predictions for 2020 and 2021 is difficult because there are multiple factors at play:
- Due to COVID-19, businesses have realized that employees can effectively work from home. They can save overhead of office space (if their lease is about to expire or they were considering leasing more space) by letting more employees work from home. This, plus more people have figured out how to order online instead of going shopping, will put downward pressure on commercial real estate. Employees in high priced locations like Seattle and San Jose may be tempted to move out either a bit (still able to go in to the office once a week or so) or a lot. This will benefit places like Spokane and Cheney, as prices here are substantially lower than in the Seattle area.
- There was a substantial housing shortage prior to the lockdown and builders were forced to stop building. Sellers were unwilling to sell due to health concerns. This caused an increase in demand, possibly a temporary increase in demand. Demand should be strong for the rest of the year, and we are seeing that in Spokane and Cheney.
- People who were forced to work from home may decide that having more space would be nice. They may wish to have a dedicated office. This will increase demand for four bedroom houses.
- People who are worried about the COVID virus may prefer single family homes to apartment buildings and condos, with their shared elevators and laundries. But people have short memories. There may be a short term reduction in demand for condos and apartment buildings and increased demand for single family houses. Perhaps for six months or so.
- There is a TEMPORARY moratorium on evictions and foreclosures for properties with federally insured loans and some states and cities have provided their own moratoriums. That means that the current housing numbers are not normal. Some potential sellers of apartment buildings or houses cannot sell while they have a tenant who is not paying. Very few buyers would want a property with a non-paying tenant. After the moratoriums are lifted, some landlords will want to sell or may need to sell. This will affect jurisdictions with eviction moratoriums more than other jurisdictions.
These numbers are better than the predictions for Canada and England where double digit losses are predicted next year. The U.S. has provided more government help than those two countries, so there probably will be a difference. The big question is what happens when the government money for additional unemployment benefits, PPP, and purchases of mortgage-backed securities stops, along with the prohibitions against foreclosures?
If you own positive cash flow real estate in Spokane, you may wish to hold it for the cash flow. If your real estate is negative cash flow, it may be a good time to sell. Most profits in real estate are made from leveraged appreciation. Without the appreciation, why pay for negative cash flow while there is so much uncertainty?