As we continue to navigate the global challenge of the coronavirus and its impact upon the economy, many are asking what the effect on the real estate market will be over the next few years. In a recent article, I shared about what we learned from the downturn in the last decade when we saw foreclosures and short sales. I don’t expect we will see that sort of thing this time around, for several reasons.
One of the main differences this time is the stimulus and business loan programs that are being offered. The federal government has already issued one-time payments to families – something that didn’t happen during the crash in the late 2000s – and they are considering more. Also, even people who aren’t normally eligible for unemployment are being allowed to sign up for it now due to loss of work. These stimulus packages, if they are all approved, will lead to people earning up to three times as much than they made when they were working – particularly those who were considered lower income earners. The result of this will be seen as early as the third quarter of next year, with an inflation increase of 3 to 4 percent. It will also probably lead to increases in mortgage rates during that same time period, probably closer to where they were before the current pandemic all began.
Right now, interest rates are incredibly low and it is a fantastic time to buy, especially if you are looking at options for long-term investment. As we move into a new season, property values for the strongest investments are expected to increase. Coupled with higher interest rates in that next season, the window of opportunity to buy will close.
On the sellers’ side of things, this is a fantastic time to sell if you own a investment or vacation/second home cabin. Inventory continues to be low and market prices are holding steady, however we know from our past experience that as summer approaches there will be people who need the cash equity from their cabins. Perhaps it was something they were using strictly as a vacation property or it wasn’t earning enough on rental to help the owners stay ahead of the mortgage payments. Those cabins will be priced below market value and their sales will impact appraisal values on cabins that are sold after. So sometime around September we will begin to see a slight shift in appraisal values. Cabins that continue to cash flow will be less likely to be sold during this time, and so inventory will continue to be low. This will also mean new construction will continue to be a popular option for many people.
And it will be worth the wait for the cabin to be built, as the new construction options will include newer, more popular amenities, upgraded materials and design to match what is most appealing for our guests. So when it is done it will be worth more than something that is older and outdated, and will generate more in gross revenue rental income as a result.
As always, I am always available to talk with you and answer any questions you may have about the current real estate and rental cabin market. Stay safe!