The housing market has been hitting historic highs in sales and historic lows in interest rates, but the increasing prices cannot last long and should be adjusting in the next six months, experts say.
The recent events with COVID-19 and the stimulus checks that were given out by the government are one explanation as to why there has not yet been a crash in the housing market, according to real estate experts and faculty members at CSUSB. Although the strong housing market is beneficial, the increased debt from the stimulus checks will have lasting consequences on taxpayers, according to CSUSB faculty member Montgomery Van Wart.
Van Wart is a professor of public administration at CSUSB who has a doctorate in public administration. “It’s not the housing market that is sustaining the broader market, it is government putting trillions of dollars into the economy and saying to you, ‘you will be paying taxes on this for at least a decade,’” says Van Wart.
The next adjustment in the market could come as soon as January, Van Wart stipulates, but will very likely occur within the next one to two years.
Whenever money is borrowed, it must be paid back, explains Van Wart, and the government borrowing three trillion dollars for the stimulus checks is going to have long term consequences. Taxpayers will have to shoulder the burden of repaying that money which will possibly cause the the booming housing market to slow.
“The government has taken counter cyclical actions, but in order for that to work, government should reduce its liabilities in good times so that in bad times, it can afford to spend surplus and go into debt,” explains Van Wart. “But for the last five years, we haven’t saved a nickel. We have been spending away. I love to spend money, but it is just not good economics. I think in general the government should stay out of worrying about the housing market.”
Yu Liu, professor of economics with a doctoral degree in real estate agrees with Van Wart that the stimulus checks, due to COVID-19, will have lasting consequences on the state of the housing market.
“The pandemic has cost our country a lot of money. So that will definitely reflect on the real estate market in the long run,” Liu says.
Though Liu has observed that a decrease in the market is coming sometime in the next year, he believes that the decrease will be a gradual one compared to the major adjustment that happened with the housing market in 2008-2009. Waiting to buy is still a good option, according to Liu.
“If you’re not in a hurry to buy, I do recommend you wait to see what will happen at least the next couple of months. It’s a presidential election year so there’s a risk of policy change. Based on the current market, I don’t think the prices are going to continue to go up. And they are going to keep the interest rates low for a couple of years. If that is the case, it doesn’t matter if you buy right now or later,” explains Liu. “To the best of my knowledge, before the next half of next year, housing prices will decrease. By that time, it will be the perfect time for everyone who wants to buy a house.”
Real estate agent Dan Tovar experienced challenges during the housing market crash of 2008-2009. He learned from his experiences and put that knowledge to work when COVID-19 started impacting business.
“When COVID first hit, we knew what we needed to do. We needed to get rid of frivolous expenses, work five times harder, be a chameleon and change with the market, and predict what the market was going to do,” says Tovar. “Either the market was going to crash or skyrocket, so we did both types of marketing at the same time. We were already preparing to deal with this market seven months ago. We were very careful. We knew what worked, what didn’t.”
After a slight decline in business and strategic marketing, Tovar’s business has increased to some of its highest rates ever.
“We’re averaging six to eight escrows a month right now. We usually average about four a month. 2020 has been good to us. I’ve sold twice as many homes this year than I did in the last three years,” Tovar explains. “Our average sale price is usually $335,000-340,000. My average now is $500,000-525,000. We’ve increased our average sales price about 40%.”
Tovar is not alone when it come to an increase in business. According to Van Wart, it is a seller’s market across America right now and the majority of real estate agents across the country are all dealing with the same increase in business.
Misty Myers, who has been a real estate agent for the past six years and manages a team of agents, has been surprised to see the means to which people are going through to buy houses right now.
“For a house we just put on the market on Friday, I set up 42 showings between Friday, Saturday, and Sunday. As of the end of the business day on Monday, I have 13 offers on this house. The house is listed for $315,000 and we have offers up to $360,000 because people are so desperate to buy a house and take advantage of the interest rates,” explains Myers.
According to Myers, people are struggling to get their offers approved depending on the type of loans they have as well as the lengths they are willing to go to offer a compelling offer.
“It’s crazy competitive. It’s great if you’re a seller because you have the gold. You have what everyone wants. As a buyer, it sucks because you’re writing multiple offers just trying to get accepted on anything,” Myers says.
Riverside resident and real estate agent of 21 years, Jen Faris, bought a house in August for herself, despite the steep competition she faced.
“I was the first one to see it cause I’m a realtor. It had only been on the market for two hours,” says Faris. “That day, they had multiple offers so I let the realtor know that I would be writing an offer, and he got it the next morning. He had so many offers that he shut it down. They sold their home in 24 hours.”
Though the prices are at record highs and it might be tempting to try and invest in the market now, all the experts agree that a price correction is coming soon and waiting to buy until at least after the election is probably the best course of action.
“It’s inevitable that the housing market is going to go down,” says Van Wart. “It is not a ‘maybe,’ it is when and how much.”