Residential Real Estate … What the hell is happening right now?

I get asked a lot these days …

  • should I sell my rentals at these high prices? 
  • Should I be buying …?
  • What’s happening to the market just now?

I’ve had 3 parties even ask if selling their primary residence into this market and then renting a home for the foreseeable future is a wise plan.

Nationwide it seems residential home values are spiking; from Bismarck North Dakota, to small towns like Canon City Colorado, big cities everywhere, to rural homes in Iowa – values are surging and buyers are multiple.   Basically, the same story everywhere I check.

Who can say all the reasons exactly –

  • low supply of new homes,
  • construction pinched off for a few months with the high price of lumber the first half of 2021, or
  • the historic low mortgage interest rates due to the Federal Reserve holding down interest and pumping in liquidity as part of the 2020 Covid relief.  

Transfer of Values

Here’s my take.  Many average folks have a sense of the surging residential values, but lesser known is the extreme ‘pucker factor’ commercial office owners are feeling just now.   They don’t like to talk about it – you won’t find articles of these owners ‘putting it out there’, but its there.   They are all in a collective stunned silence just now with the high vacancy they have.   Even if the commercial tenants are still paying full rent understand – they know that all the dark space in their buildings isn’t a good long-term sign.

Last March when office workers were ‘sent home’, they were sent 25 to 40 minutes away to their current homes.   That then shifted March/April of 2021 to, “you are now a permanent ‘work from home’ status.”  

So if you can work anywhere that has decent internet – all those workers quickly realized, I can live in Moab, Missoula, or Missouri if I want.  I believe that migration underway just now is driving a lot of the value shift we are seeing in residential real estate.

I know of two stories where a bay area executive abandoned the high cost of San Fran and moved, one to Tennessee and one to Texas – and (for now anyway) kept the San Francisco salary!  Bay area salary in a Tennessee cost of living!

Pendulum

So the dollar value of office buildings is melting away and transferring out into the residential market. 

This is a pendulum swing; I’m guessing will last 30 months or so.  Then, businesses will flip and say we will increase productivity / creativity etc. by everyone being all together in a office setting.   That’s just how management fads cycle.   Right now, its away from the office – soon the pendulum will swing back.

Google for example isn’t buying this trend, my Google clients are all being timelined (smoother word than ordered) back into the office setting just as before Covid.

I know of some folks that had to sell their residence, rent a home to live in so they could use those sale proceeds to fund the negative cash flow of the small office building they own.  Tenants of their building: left with no notice or forwarding contact, dissolved & went out of business, or stayed in the building but could only afford a fraction of the agreed rent.   There’s that pucker factor we talked about.

What’s a great play in the current market?   You’ll need to be a client of Balanced Financial Inc to hear that part.  Contact us at our website or hit me at greg@balancedfinancialinc.com.