Residential Real Estate in 2021… What the hell is happening right now?

 
Some questions I get asked a lot these days?

• Should I sell my rentals at these high prices? 
• Should I be buying?
• What’s happening to the market right now?

 
I’ve had 3 parties even ask if selling their primary residence in this market and then renting a home for the foreseeable future is a wise plan.
 
Nationwide, it seems residential home values are spiking - from Bismarck, North Dakota, to smaller towns like Canon City, Colorado, from big cities to rural homes in Iowa – values are surging and buyers are multiple.   Basically, it’s the same story everywhere I check.
 
Who can say all the reasons exactly, perhaps:  

• A low supply of new homes?
• Construction pinched off for a few months with the high price of lumber the first half of 2021?
• The historic low mortgage interest rates due to the Federal Reserve holding down interest and pumping in liquidity as part of the 2020 Covid relief?

 
Transfer of Values
 
Here’s my take. Many average folks have a sense of the surging residential values, but lesser known is the extreme “pucker factor” commercial office owners are feeling right now. They don’t like to talk about it and you won’t find articles of these owners “putting it out there”, but it’s there. They are all in a collective stunned silence now with the high vacancy rate they’re experiencing. Even if the commercial tenants are still paying full rent, they know that all the dark space in their buildings isn’t a good long-term sign.
 
Last March when office workers were “sent home”, they were sent 25 to 40 minutes away to their homes. That then shifted in March/April of 2021 to “you are now on permanent work from home status” in many cases. Workers then realized they can work from home anywhere that has decent internet service and realized “I can live anywhere – Moab, Montana, Missouri, etc., if I want.
 
I know of two stories where Bay area executives abandoned the high cost of San Francisco living and moved out of state, one to Tennessee and one to Texas, and (for now anyway) kept the San Francisco salary!  Bay area salary in Tennessee cost of living!
 
Pendulum
 
So, the dollar value of office buildings is melting away and transferring out into the residential market. This is a pendulum swing, which I’m guessing will last 30 months or so. Then businesses will flip and say to everyone ‘being in an office setting we will increase productivity/creativity’. That’s just how management fads cycle. Right now, it’s away from the office, but soon the pendulum will swing back.
 
An example is Google who isn’t buying this work-at-home trend.  My Google clients are all being time lined (smoother word than ordered) back into the office setting just as before Covid.
 
I know of some folks who owned a small office building, who had to sell their residence and rent a home to live in so they could use the sale proceeds to fund the negative cash flow of the office building. Tenants of their building left with no notice or forwarding contact or dissolved and went out of business. Some stayed in the building but could only afford a fraction of the agreed rent. There’s that “pucker factor” we talked about.
 
What’s a great play in the current market? You’ll need to be a client of Balanced Financial, Inc., to hear that part. Contact us at our website or hit me at greg@balancedfinancialinc.com.
 
 

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