By Charlie Wood
Every year, many people—whether they’re agents, buyers, sellers, or armchair realtors—wonder what is going to happen in this new year in real estate. Farbeit for me to consider myself a real estate psychic, especially after 2020 threw us all for a loop, but there are some reasonable things we can expect to happen in the real estate market, both nationally and locally, in 2021. First, let’s take a quick look back at 2020.
2020 started strong, with all signs pointing toward a solid, steady year in real estate. Unemployment was low nationally, money was cheap (historically speaking) and there were new buildings and homes being built in the city and suburbs every day. We all know what happened next. With the first global pandemic in 100 years, COVID-19 sent shockwaves. Governments, businesses, and individuals alike tried to make sense of what was happening in a truly scary time. Countless lives and jobs were lost, careers were put on hold, the stock market had one of its worst stretches in history, and we all got used to staying in our homes, working remotely, learning remotely, not traveling, and picking up a hobby or two—like bread making or playing piano. These events combined to bring real estate to a screeching halt as people hunkered down to try to minimize the effects of the virus.
With the benefit of hindsight, what happened next sounds reasonable enough—even if it shocked us at the time. Stuck in their homes as work, school, and domestic tranquility all collided, people started to reconsider their living space. What we witnessed, and now I will refer to Chicago specifically, was a multi-pronged migration. Some people couldn’t stand their 1-to-2 bedroom condo downtown and traded up for a duplex or townhome in the city. Some simply skipped the two years they thought they would wait before jumping to the suburbs and made the move ahead of schedule. Some even—with the benefit of working remotely—took off for warmer, cheaper or more scenic destinations; from Montana to Michigan to Florida. The overall theme we saw driving this activity was more space: more living space, more office space, and more green space to break the monotony of life during covid.
After a year of questions, one more: what’s next? One thing we know for sure is that money is going to be cheap. At around 2.5-3% for a 30 year fixed-rate mortgage, there has not been a better time in our nation’s history to buy a home, at least when it comes to financing. All indications for fiscal policy suggest that this will be the case for the rest of the year. Quite literally, there has never been a better time to buy.
Another thing we know is that inventory is going to be tight in the areas people want to move, principally areas outside of the city center (low density), and in the suburbs. Houses have been snatched up at such a fast rate that demand is outpacing supply. This is a good problem for sellers to have, and prices have stabilized and in many cases gone up here in Chicago, albeit at a much slower pace than much of the country. Buyers, however, may have trouble finding the right home. Hey, at least we aren’t living in the San Francisco area where an agent recently shared she had 80(!) offers on one property.
So, what to make of the downtown market? This is a very good question, as inventory in this subset of the market has grown considerably, and it has been in many cases (at least in the high priced units) a race to the bottom, with many sellers having to drop prices aggressively to stay competitive. In New York City, however, a place that is usually a leading indicator nationally, that process is starting to slow and even reverse, as prices have gotten low enough that there are good investment opportunities available. Having no crystal ball, I cannot predict if that is to be the case in Chicago moving forward, but it is a reasonable prediction at this point.
One thing that should aid the slowing of the flight from the city center is a palpable optimism from the recent vaccine news. In addition to the two vaccines already approved and being distributed, there is a third expected to be approved next month from Johnson and Johnson. As these vaccines become more widespread and (fingers crossed) effective, we can expect life to slowly get back to normal this year. This, together with a new administration that is seen to be more likely to pass fiscal stimulus that will help small business, municipalities, and individuals through unemployment benefits and potential stimulus checks, hopefully means there is light at the end of the tunnel. New Year’s Day didn’t bring an immediate change to the challenges we face, but all signs point to some positive momentum that will hopefully bode well for the real estate business but also for our country as a whole.