13.5 years is the average stay for people in their homes!!
There is clue #1 into the seemingly perpetual question of why we don’t have any inventory. It makes one wonder why the stay is so long. When I started in the business 31 years ago, in the Washington Metro area it was closer to 3 years!!
There are several explanations. One is that as prices have increased homeowners have picked up a lot of equity that they can tap for expansion or remodeling. And as interest rates have steadily declined the cost of tapping that equity has gone down. Some owners have been able to do major additions and actually see their payment decline. Another is as the the same equity and interest rate changes have occurred owners are able to tap the equity for the downpayment for a move up or down purchase and hang onto the old property as an investment. There are of course other factors but until the turnover rate increases dramatically we are going to continue to suffer from inventory shortages.
As COVID proves to be sticky and the vaccination process hits snags, financial pressures continue to mount so I’m keeping an eye on the implications for the distressed market in the coming months. As regular readers will note I have posted at length about the market reasons (equity positions and inventory shortages, etc) so I won’t revisit them in depth here. However personal financial pressures will soon start to play an important role and the longer the various governors keep the economies shut down the more broad and deep that impact will be. Forbearance programs have provided an incredibly effective solution on the mortgage side with one caveat. The forbearances will ultimately end and the ones that require a balloon payment rather than a mere tacking on to the loan balance of the forgone payments will surely trigger some distress sales. But these programs only affect the mortgage component of peoples balance sheet. It does not do anything for their personal finances. If they have been out of work for 6 months and have eaten through savings or lived off credit cards, or if your business finally gave up the ghost after struggling valiantly against the shut downs there will be some distress sales. So bankruptcies and the like will be what forces the distressed market. Fortunately right now less than 1% of mortgages are currently upside down from an equity position.
On the policy front the moratorium on evictions was extended to the end of March and it has been proposed but not passed to extend it to the end of September. That is important because some 14 million Americans are behind on their rent, hurting them and putting pressures on landlords. There appears to be some government programs coming to assist these people but at first look they appear to be difficult to qualify for.
The revolution continues in office space and land use. Amazon just paid about 1.2 million an acre for about 30 acres down the street from my Chantilly office to build more data centers. And in Reston they are doing deals to tear down low density office space to be replaced by residential construction.
Lots going on with implications for the future so tune in each week to learn or reach out to me directly. Always happy to talk real estate!
It’s a good life.
Chris
