Uncategorized September 8, 2021

Puget Sound Market Update 9/8/21


Longer read this week but here’s the TDLR:
If you’ve been sitting on the sidelines and waiting for a buying opportunity (and evictions proceed as expected and properties come up for sale), be on the lookout for deals between October and January.

Goldman Sachs is expecting 750,000 households to be evicted during the eviction crisis. This is a result of 3.5 million households being significantly behind on rent and disastrous roll-out of rental relief. Therefore, it should come to no one’s surprise when landlords say they’ve had enough. While evictions are an unpleasant ordeal, and there’s a story behind each one, Goldman Sachs has found a silver lining behind evictions on such a large scale.

On the macro-economic side of things, Goldman Sachs is expecting such a crisis to ease inflation. Current inflation levels has been lead by the rising cost of consumer goods; however, we are now seeing an inflection point. Despite consumer goods prices leveling off, inflation might continue to trend upwards due to the increasing cost of shelter.

Goldman’s forecast comes at the same time as the Dallas Federal Reserve’s report which expects rents to rise 6.9%, and have estimated that home prices are a leading indicator of what’s to come in the next two years. Contrary to the Fed’s modest estimates, The Wall Street Journal reported that the asking price on “homes-for-rent” have risen 13% since January – the highest increase in the last five years. Apartments are more modest in their rent appreciation at 8.3%.

An eviction crisis would increase the amount of units available for rent, which would lower rent expectations, soften real estate price appreciation, and reduce inflationary pressure. While this anticipated housing crisis has been pegged as a market-crashing event… some see the economic sliver lining (human suffering aside).

So what should happen if eviction-style properties start coming up for sale? Well, Redfin has reported that the share of homes with price drops is over 5%, indicating that the market is cooling somewhat. Now, if a third of those 750,000 houses came on the market, that would bump inventory, as a whole, up by 5-10% (national sales volume).

While evictions are by no means a quick process, if these properties do hit the market hard and fast, we’ll likely see a divet in real estate prices. It’s important to note other trends in the market:

  • Bidding wars in July were at their lowest levels since January (60% homes faced bidding wars)
  • Investors now make up 16% of all homebuyers (up from 10% on average).

Consolidating all of this information: If you’ve been waiting for a buying opportunity, I’d be on the look out for deals between October and January as the market continues to cool and sellers face increased competition.

Thanks for making it all the way down here!