July 18, 2024

Housing Crisis 2021

San Diego real estate market forecast - Housing Crisis 2021

This video does a great job illustrating why it’s hard to believe everything you hear these days.

As a California real estate broker with over 30 years in residential real estate, I have NEVER seen the housing market as crazy as it is right now! I can’t see how this will end well to be honest…

Housing Crisis 2021

San Diego 4Br. home for sale

The example home in this video is the outskirts of DC. It’s a very expensive place and housing has always been very tight. If you are a new couple and need to live in this area you rent or do the condo route until you are making more money. Young couple, JUST STARTING out in your career ( which means you may be at the lower end of income at your new job ) don’t by a 4 bedroom. Got to work and save. Go 20/40 miles in any direction and the homes would be more affordable to a younger couple and if the real estate market remains hot, you will also see some nice appreciation.

Looking back, the last time I saw homes increasing in value at double digit annual rates was around 2006/7. But, even than, the housing market was not in the red hot frenzy it is today. This is probably not something many of today’s buyers are old enough to remember. Than it was easy money loans and many zero down ‘lair’ loans. Today, it is quite different, with many real estate purchases taking place on an all cash basis. But, what is eerily similar is the huge annual double digit housing appreciation.

California's Push Against Private Real Estate

Double digit annual home appreciation is not sustainable. Again, going back to 2006 and 2007, it marked the top of the real estate frenzy then and the beginning of a huge drop in real estate values that kept the market depressed for almost a decade. For those of you who remember that time, the term ‘underwater’ became very popular when referring to the fact that many homes had mortgages on them that were higher than what the resale value of those homes had dropped to. During this time in San Diego California, there were neighborhoods in San Diego that hit a 30% drop in values from their peak in 2007 and 2008.

If you don’t remember this period of time, I’d suggest you do some research into it, because there’s an old saying that goes something like: “those who don’t remember the past, are doomed to repeat it!”. Yes, I believe the frenzy of today’s residential real estate market is a huge red flag marking what I feel could be an easy double-digit price drop in the residential housing market.

As I said, the frenzy itself is what has old-timers like myself very concerned, but we also have to add in other factors that may be considered minor red flags for the residential housing market today. These other red flags include the Corvid 19 eviction moratoriums that are always getting extended (currently it looks like the next date for them to expire will be the end of 2021) with many people paying a fraction or nothing toward their rent payments. Sure the government keeps saying that these renters are responsible to the owners for the amounts that are due, but in reality, the government’s constant extension of these moratoriums is making the matter and the amount owed much worse than if they would’ve stayed out of the free market. Now, unfortunately many renters who are taking advantage of these moratoriums owe thousands of dollars, which are never going to be repaid!

The Wedge surfing - Housing Crisis 2021

Yes when these moratoriums finally end, how many mom-and-pop landlords are just going to be totally fed up and sell their properties because of their fear of a similar situation happening sometime in the near future. Another red flag, is the fact that the Biden administration is now toying with the idea of modifying the 1031 real estate exchange rules, which would make the majority of the benefit of a tax-free exchange just a fond memory for many real estate investors.

So the big question today is, at least for me personally, not if this residential real estate market is going to crash, but exactly when it’s going to occur. Yes, this is a big question of the day, perhaps the key here is a when interest rates make a definitive turn up.

Housing Crisis 2021