Hello 2021 - The Year Ahead and Real Estate reflections from the firm’s resident industry observer
by Chuck Biskobing
When we launched our blog, we promised we’d scour the headlines to curate valuable and relevant news in the real estate world. Today we give you the third in a series of expert commentaries penned by our own Chuck Biskobing, attorney and trend watcher who, this time last year, correctly predicted a strong 2020 for real estate but wasn’t prescient enough to forecast the pandemic mayhem (insert eye roll here!). Chuck’s occasional blog series is an ongoing opportunity for us to get a glimpse into how he interprets the real estate climate. We invite you to contact Chuck or any of us to share in the discussion. Happy New Year!
~Kara and Heather
For many people, 2020 was a bad year, but for those in the real estate world it was also a busy one. 2021 will hopefully be a little better for everyone. We finally have hopes for an end to the COVID-19 nightmare with the vaccine already being distributed. However, there is still a lot of uncertainty in how next year will shape up, especially how the new administration and Congress will handle matters such as economic policy, regulations, trade and taxes. But for the most part, sentiment is positive.
On the economic front, the Fed is expected to keep rates low for the foreseeable future. This, and economic stimulus from Congress, should help lead to a broad scale recovery in the overall economy. The extent of the recovery, however, depends on several factors including how effectively the COVID vaccine is rolled out and the extent of stimulus Congress is able to pass.
I think real estate is likely to remain strong, but there are some risks. If the vaccine rollout proceeds quickly and economic activity improves along with this, then it is possible the Fed will begin to reconsider their extraordinary rate policies. Even the possibility of this happening may cause the market to begin to push rates higher. Higher rates coupled with continually increasing property values could begin to slow demand for purchase transactions. Home price gains in 2020 have been better than they have been for several years, but increased prices may act as a damper on demand, even if rates don’t move higher.
Refinance demand will likely fall off in the coming months, as many of those people for whom a refinance made or makes sense finalize their loans. At some point, everyone who is planning to refinance will have already done so. Couple this with the possibility of higher rates later in the year, and it’s possible that 2021 may be the end of the road for the big, rate-led refinance boom of the last decade. That said, only slightly higher rates and record levels of home equity may just mean that more people decide to cash out refinances to pay for home improvements or to pay off other debts.
Realistically, not much is likely to change in 2021, at least in the first half of the year. I doubt the Fed will adjust their rate policy until three things happen: it’s clear the COVID vaccine has been widely distributed; the vaccine is effective at containing the outbreak; and economic activity is well on the way to returning to normal. I do not believe these conditions will be met until, at the earliest, the latter part of the year. Even then, the Fed has stated that they would hold rates steady until inflation moves higher.
Here are six other topics I’m watching for how they might impact our current landscape:
1. Senate elections in Georgia
A sweep for the Democrats could allow the Biden administration and Congress to aggressively move in the areas of regulation, taxes, other economic policies.
A split outcome or sweep for the Republicans would mean a stalemate in Congress and would probably limit the administration to executive actions such as beefed up regulations and broadly popular stimulus legislation. Legislation that requires cooperation from Congress, like changes to the tax code, are unlikely to advance.
2. Vaccine rollout
The economy may continue to stagnate without answers to the following questions:
a. How widespread is acceptance of the vaccine?
b. How quickly is it being distributed?
c. Are adverse side effects being noted?
d. Does it provide long term protection from the virus?
3. Congressional stimulus
As I write this, Congress is on the cusp of passing another round of stimulus. What is included in that bill is not yet clear but, no matter what, this stimulus should help the economy get through the next couple of months. Beyond that, it’s uncertain.
A large infrastructure bill is something that the incoming administration has discussed at length. The size and scope of the bill may hinge on the outcome of the Georgia elections, but I expect some sort of compromise package to get through Congress, even if the Republicans retain control of the Senate.
4. GDP and growth in economic activity
If economic gains are limited to specific industries and not widespread throughout the economy, then I think the Fed will not move to raise rates. Negative outcomes could also lead to greater Congressional stimulus.
5. Inflation data
Widespread inflation could force the Fed to consider rate moves despite a lack of broad economy growth.
6. Other adverse events
The world is a crazy place right now. Heightened tensions with China, Iran, Russia or elsewhere could lead to unanticipated events that could cause market impacts.
Domestic problems, such as social justice issues and discontent with the outcome of the election, could also lead to instability.
Sustained high unemployment could lead to rising eviction and foreclosure rates that could negatively affect economic growth and could cause special issues for the real estate industry.
Taken together, I interpret this all to mean rates will remain near historic lows for 2021. I do think the market will be ahead of the Fed as they begin to see the above noted conditions being met. So, while rates will not rise much, I think the path forward is a slow increase from where we are right now. My best guess at rates this time next year is a 30-year mortgage at 3.25-3.5%.
But guessing at rates is a fool’s errand, so who knows where we end up!
Chuck Biskobing, senior attorney at Cook & James, devours information and distills research from his work as a closing attorney and personal interactions with builders, agents, loan officers and other industry insiders. He’s licensed in Georgia, South Carolina, North Carolina and Connecticut and has participated in more than 5,000 real estate closings. To counter all the geeky screen time and paper work required to stay current on the real estate climate, laws, news and industry trends, Chuck is an avid outdoor adventurist who has hiked Mt. Kilimanjaro, scuba dived in Zanzibar and once took a five-month hiatus to hike the entire 2,189 miles of the Appalachian Trail.
Thank you https://unsplash.com/@reidnaa for the thumbnail photo!