Real Estate 2021 Outlook National vs. Local

[Ryan Reddy]

Hey Everyone,

My name is Ryan from Denver, CO and I'm a newbie looking to get into house flipping and multi family rentals! I have read four of the books published about to start number five and I am starting to look at deals for my first potential flip!!! 

I am looking to get into house flipping here in Denver and I've been reading about the impending housing crash of 2021 due to mortgage delinquencies rising. Nationally and locally this has different meanings as I think in my own market this could be helpful. I obliviously don't want to be buying at peak prices then reselling during the fall, but I was wondering if the increase of houses due to delinquencies into the Denver market would be helpful? 

Note: the Denver market inventory is extremely low which is driving prices to all time highs.

I personally think, my opinion isn't worth much as I'm a newbie, this could be good for the Denver market as it could bring prices down a few percentage points, without a total crash like '08 , making it a better market for buyers and bring in potential new buyers who have been priced out b/c of the recent increase. 

I would love to know everyone's thought and how they think the national market vs their local market will pan out in 2021

[Steve K.]

Hey Ryan, Welcome to the forums! 

I'm not sure about a crash next year. We watch the stats pretty closely in my office and meet weekly to discuss. The most veteran agents/data heads I know are calling for the hottest market we've ever seen in the spring. Low interest rates are expected to continue and more people are moving into this market than ever before. New construction can't keep up with in-migration, demand will probably continue outstripping supply. The underlying fundamentals of the Denver market are solid long term. We have strong population growth, a diverse and healthy job market (lower unemployment throughout Covid than the national average), and a lot of soft value/desirable features/quality of life characteristics that seem to be drawing people in now more than ever. 

As far as mortgage delinquencies compared to 2008, people have so much more equity now than they did then, so they have better options rather than being foreclosed on. I think it's unlikely we'll see a major uptick in foreclosures. There are very few foreclosures happening currently in the Denver market so it's not a strategy I see many people pursuing. 

With the major variable of Covid it's hard to accurately predict anything right now IMO. We've seen some variation in performance across market segments such as condos downtown underperforming compared to the rest of the market, and a bit of inconsistency in the high-end luxury price bands, but overall appreciation has remained steady. Close-in suburban areas are on fire, as well as mountain towns, and anything "entry-level" is hot no matter where it is. If the new administration implements the $15k first-time homebuyer downpayment assistance tax credit that has been proposed, it could boost the already-overheated entry-level market segments 20-30% practically overnight. But who knows?

 I'd worry less about macro-economics or trying to time the market perfectly, and focus instead on individual deals with good spreads, and specific neighborhoods that are on the upswing. For flips, annual timing is more important than market timing in my experience. Everyone I know who flips here buys at this time of year, does the work over the winter, and sells in the spring. That seems to be the right formula for flipping here. That said, this year has been different and it was a good time to be a seller this whole year, even right now when it usually slows down dramatically. The sell-through rate is crazy and still a strong seller's market, so flips are doing really well this year. I wouldn't have predicted that in the spring. If I had taken a flip on then I would have been freaking out. But that's the way it went and flipping was a great strategy this year despite the pandemic. I'm more of a long term approach, value-add buy and hold guy: I basically look for value-add properties with good value compared to surrounding properties, rehab them up to the market standard, raise rents to create cash flow/force appreciation, then refi and keep them rather than selling. So market timing/annual timing isn't that important to me.

Overall I think the Denver market will outperform the national market next year, but again I would worry less about macro-economics/market timing and focus instead on the merits of individual deals themselves/good submarket locations and just get in the game. But I've been wrong once or twice before.