In this issue:
  • November sales and lease data from HAR
  • Congress does something?
  • COVID vaccines and a path forward
Hello my friends and welcome to my final letter of 2020.  A year that I’m sure none of us will be sad to be done with and, it does now seem likely that next year will be better, likely much much better. Vaccines are already being distributed and administered in record numbers, the FED increased its GDP outlook for 2021, and we won’t have to deal with a presidential election.  I’m ready for it, but first a quick look back and our present situation.
Every single month starting in July this year showed a dramatic increase in the number of sales for the top 2 pricing brackets of the market and a decrease for the lowest 2 pricing brackets.  That is 5 months in a row, and we’re talking 80% increases for the most expensive tier for several of those months.  Not that we’re surprised by anything that is unprecedented these days, but this picture really is insane.
Broken out by housing segment, November sales performed as follows:
  • $1 – $99,999: decreased 38.5 percent
  • $100,000 – $149,999: decreased 37.0 percent
  • $150,000 – $249,999: increased 7.4 percent
  • $250,000 – $499,999: increased 50.3 percent
  • $500,000 – $749,999: increased 72.2 percent
  • $750,000 and above: increased 88.4 percent
I can’t predict how exactly this will work out, but I do expect it to eventually benefit landlords who own homes that are renting for less than $2,000/month.  There is just not much in the way of affordable housing.  Some combination of folks not wanting to sell, lower income earners not being able to purchase houses, and people not moving around much has caused these lower priced homes to be sold at a drastically lower volume than years past.  I believe this will force a larger population to have to rent.
Having said that, leases for single family homes in Houston were down 11.1% in November year over year, and rent declined 5.5%.  Looking at monthly snapshots can bias attitudes, make sure to pay attention to the larger trends, and let’s hope this rental market does pick up for us investors.
Congress does something?
As of the time this letter was written, Congress had not yet passed the next $900 billion stimulus package, but it seemed highly likely that it would be passed by the weekend.  So I’ll assume that it will pass and that we’ll finally have some sort of support for struggling Americans.  Though details are not clear, it seems the bill will include direct payments, small business aid, and federal unemployment supplements.  I believe the direct payments and unemployment supplements are the most important aspects for property investors.  Tenants across the nation are struggling to pay rent, and eviction moratoriums are preventing the homeowners from receiving any income to pay mortgages, taxes, etc.
The general consensus is that this stimulus package is a band-aid, and more will come after Biden is officially in place and the Georgia run-off elections are decided.  A great deal of how the next package will look depends on the run-off elections, as I’ve expressed in previous letters.  I am happy that the current relief bill has payments that will help tenants pay rent.  I am just hopeful that when the details come out and that when future bills are passed, there aren’t further moratoriums without payments to help landlords make their mortgages.
On a related note, our recent podcast features our broker David Schein and his thoughts on when we can expect further legislation to be passed that would affect property investors.  Definitely worth a listen:
COVID vaccines and a path forward
This week thousands of COVID vaccines were administered for the first time in the US.  While it will probably take more than 6 months for these to work their way from front line workers and the most vulnerable to those deemed not to be as much at risk, it is what this country and world really need in order to get back to normal.  From a property investor perspective, I don’t think much will change in the short term.  The economy and employment picture still have a very long way to clawback, but confidence that this will occur is already increasing.  The stock market is at all time highs due greatly to the release of this vaccine and expectations of an economic uptick.  Investors must still be patient, but a day is coming where the COVID concerns we are dealing with will be a fraction of what they are today.
I hope you all have a great holiday season and New Year’s.  Stay safe, and I look forward to working with you in 2021.
Charlie Roseland
Advantage Asset Management