Economy shrank at unprecedented rate - Effect on SFR Price

[Geetha R.]

Economy shrank at an unprecedented 32% annualized rate in the second quarter - the fastest pace on record and comparable only to events such as the demobilization following World War II in its severity.

But, single family residential prices are still going up. Where do you think the market is headed, especially in Charlotte and suburbs? What strategies you are following to ride the market out, if there is any crash?

[Dan DiFilippo]

It depends on the region.  And, of course, it takes a long time for this ship to turn around.  For an array of reasons.  I've always felt strongly that The Great Migration is at hand.  I've written a lot about that on here.  Anyone over 60 years old has probably been thinking critically over the last 6 months about their retirement.  Many may have taken severance packages and simply not listed their house to move yet.  But they'll be taking off as soon as this pandemic clears up and they can list safely.  Remember, they live in the places where it is most dangerous to list - those reasonably dense suburbs that have been steadily getting worse.  And they generally only live there because it's the area they've lived for work over the last 30 or 40 years.  It's a massive population glut and they're going to be seeking to capitalize on high asset values and the artificially low rates that enable them while they last (the low rates are double-impacting, of course, as they facilitate the buyers buying their homes as well as they themselves buying their next home).  They will be moving from these suburbs around the mid-size and larger cities (New York, DC, LA to some extent, SF, Boston, and more) and buying houses in retirement-friendly areas in Texas, Arizona, Florida, Nevada, etc..  These are reasonably strong credit buyers with equity in their existing high values houses seeking to buy in low cost areas.  There is a lot of cash to be pocketed selling a $700,000 home with $18,000 taxes and moving to a $200,000 home of the same size with $2,500 taxes.  So I think look for the areas in the south and parts of the west that are friendly to these buyers.  I think Raleigh (and probably Charlotte to some extent - I don't know as much about it) was an early beneficiary of this move.  But it's only been getting started.  The boomers have to do this.  Because they don't nearly have what they reasonably need to retire.

And then there are a whole bunch of interesting little things that put an edge on this.  For example, consider appraisals.  appraisals look back 3-12 months depending on the circumstances.  What this means is that a desperate seller today could still be benefiting from home appraisals made before COVID was on anyone's radar.  If the wave of desperate to sell listings goes on the market tomorrow, there won't even be any lower value sales yet for the appraisals to comp to.  This is akin to a measurement used in finance called a moving average.  Moving averages naturally dampen sharp changes in prices causing them to appear as smoother, but sustained changes instead.  Trends.  So there is a lot of market psychology involved in the determinations.  But I think for sure we're going to see a lot of panic over the next 18 months.  And not just in the real estate markets, but really throughout the entire world and in all theatres.