As I write this blog, a new year is dawning. Maryland has just vaccinated 1% of its citizens. I am not sure whether to be excited by this number or to be concerned with the Herculean task ahead. It’s truly like glimpsing a tiny flicker of light at the end of a very long tunnel.
So what should we expect from 2021? It’s certain that it will bring new challenges. And with challenges usually come opportunities. A Yiddish proverb says, “We plan. God Laughs.” Last year, we’ve made predictions about 2020 but, surprisingly, not all of them turned out to be wrong (see how accurate we were here). So let’s indulge ourselves. I bet that with some reliance on the past performance, the recent and historical data, and our collective local real estate market expertise we can make predictions that will withstand the test of time (save for an alien invasion, of course).
Real estate prices in Maryland, Virginia, and Washington, DC will continue to grow.
Coronavirus notwithstanding, the median price of a home sold in the area in September 2020 hit the record high of $512,000. It’s a whopping 18.8% year-over-year increase, making this year’s median home $81,000 more expensive than in 2019. What’s more significant is that virtually every county posted healthy increases in home prices. In Montgomery County, the median selling price of a home (including townhouses and condos) hit $490,100, up 14.2% from a year ago. Despite being hit by Covid-19 the hardest, Prince George’s County also continues to thrive, increasing its median home prices 11%, to $350,000. Baltimore metro area is not much behind: it pushed to a November ten-year high median sales price of $322,000 – the second-highest price on record.
Why do we remain confident in the Baltimore / DC region real estate?
At least four reasons.
Reason 1: Interest rates are low and are likely to remain low in 2021.
Low mortgage rates make homeownership more affordable. For example, on a mortgage of $300K, a monthly difference between paying an interest of 5.25% and 3.25% is over $350K. As the rates go up, so is the monthly payment, potentially putting break on price appreciation. Usually, an improving economy correlates to rising mortgage rates. Economists and investors believe that the U.S. economy will bounce back in 2021 as COVID-19 vaccines are distributed. However, a dramatic increase in mortgage rates is unlikely. Mortgage rates plummeted to new depths in December 2020, setting all-time lows south of 3 percent. It’s not completely unlikely for them to fall even further in the first quarter of 2021 before beginning to climb.
Reason 2: Low regional unemployment rates in the DC metro area.
One of the direct impacts of the coronavirus shut down is a drastic increase in unemployment rates. No metropolitan area has been spared. In the DMV area, the rates of unemployment almost triple from a year ago. However, we are far from being the hardest area in the nation. Perhaps more importantly, there are some signs of improvement on the horizon. In November 2020, The Washington metro area’s unemployment fell below 6% for the first time since the coronavirus pandemic began. As vaccines become more widely available, the unemployment rate is bound to slowly decline from its peak pandemic levels.
Reason 3: White collar savings are on the increase.
Despite the unimaginable hardship wrecked onto those directly affected by the shutdown, many white-collar professionals in our area were able to retain their jobs and their incomes. After all, the DC area is particularly reliant on such employers as the Federal and state governments, various government contractors, and pharmaceutical companies (here is looking at you, AstraZeneca!) Somehow, many retirement accounts were left mostly untouched. Paradoxically, Americans are saving a greater percentage of their money than ever before. As consumer spending fell, some were fortunate to increased their personal saving rate to a record 32.2% in April 2020. Of course, no everyone is in a position to do so, and the numbers highlight deep inequality in society. However, in our generally affluent area, the larger savings might be expected to translate into larger downpayment and ability to afford more expensive properties.
Reason 4: Booming Stock Market.
This New York Times article offers a detailed analysis as to why the stock market remained so healthy in 2020. I will steer away from predicting what will happen in the stock market this year. However, the bottom line is the same: buyers feel more comfortable in investing in real estate while they are flush with funds. They can step up their spending (and driving the DC-area prices up) in 2021.
Competition For Investment Properties Will Remain Robust.
The steady appreciation in the local market is bound to attract the attention of aspiring investors. We are receiving more and more phone calls from folks who, frankly, have no clue how real estate investing works. We are one of the few private lenders who welcome first-time rehabbers but the lack of knowledge among some applicants is truly astonishing. These folks will pay virtually any price for a property with little upside potential. It’s hard to compete with someone willing to bid high enough to erode any possible profit.
However, this is not the first year we’ve made such a prediction. And year-after-year, real estate investors with determination, tenacity, and creativity supplement their incomes and build long-term wealth by investing in homes in Maryland, Washington, DC, and Virginia. The competition is high because it’s a super-profitable industry and because we live in an awesome area to make money in real estate.