In a previous article, we noted that appreciation in home value hasn’t been this rapid since the Great Recession. At that point, the article took pains to explain that this was not the precursor to yet another crippling blow to our economy. Today, we will dive into the details of landmark profitability of homes as an investment.
According to the S&P CoreLogic Case-Shiller City price index, which measures the value of residential real estate in 20 U.S. major metropolitan areas (including Los Angeles), the November 2020 value of residential property was up 8% from October 2020 and 9.1% from November 2019. This information, paired with indications that California will be reopening large swaths of its economy, suggests that the price appreciation isn’t close to capping. The logic is essentially that the economy is reopening, which means more people will return to work, which would inflate housing demand and increase the equilibrium price of homes even further.
The Chernov Team takes issue with the above reasoning, but firmly believes there will be considerable growth at least through Summer 2021. What’s been notable about the pandemic’s effect on wage-earners is that the higher income earners were significantly less effected than the low-income workers (in terms of income from employment, high income earners were naturally impacted by an extremely volatile stock market). Thus, high-income earners have been driving the surprisingly robust housing market despite initial projections that the real estate market would take a nose-dive. The net effect of high-income earners searching for homes, and a limited number of homes, is that prices skyrocketed as wealthy individuals battled for limited homes. In recent times we have speculated whether housing prices had reached an equilibrium, as there is a certain point where even wealthy people wont pay $X for a home. Regardless, the people returning to work simply don’t make enough to enter today’s real estate market; this is true notwithstanding historically low mortgage rates. We will likely see a major surge in home purchasing as inventory is increased through new construction, and people placing their homes on the market after the COVID vaccine is shown to be effective.
At the Chernov Team we understand that knowledge is power, and knowledge of how the market will behave in the future is powerful knowledge indeed. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.