Real estate is both a lifestyle and an investment. The dual goals are not mutually exclusive, and present tremendous wealth building opportunities if you hear those opportunities knocking at your door. The key is to keep your ears open to the knocking. I believe we are at one of those moments in time where we will look back and say, “I should have bought property…” Why? Because of (a) a seemingly siege mentality by some sellers and buyers, (b) the confusion surrounding the current occupant of the White House and his intentions on January 20th, and the nervousness it creates in the investment community, and (c) near zero interest rates for at least the next two years. All of this creates opportunity at an extremely low cost of funds, a future of increased inflation and a temporary respite from the sellers dictating the agenda.
Now, on the matter of Mr. Covid’s visit into the real estate market, and you can judge how much confusion he has brought. I looked at six different areas in The MLS for the months of November 2019 and 2020. In Westwood, I only looked at zip codes 90024 and 90025. Those six geographical areas are;
- Beverly Hills
- Bel Air / Holmby Hills
- Palms / Mar Vista
- Santa Monica
It appears he has had a detrimental effect in different ways, depending on the market, the area, the price point and the type of property. The condominium market took the biggest hit, dropping almost 10% in negotiations from listing to closing prices as reported in the MLS. The Days on Market (DOM) are about the same, though, for Single Family Residences (SFR) and condominiums.
The biggest difference between SFRs and condos shows up in the average difference between closing prices of Nov 2019 and Nov 2020. Of course, the higher end shows up doing better, with Beverly Hills at +58% and Bel Air / Holmby Hills at +73%. SFRs averaged a +21% increase while condos saw a -1.2% decline. This despite that average changes in $/SqFt to be about the same; +6.15% in SFRs and +6.79% for condos.
These are the pockets of West Los Angeles, and using the reported numbers, I could not find any clarity or trend or pattern. Mr. Covid seems to be all over the place. The only statistical anomaly was in Bel Air / Holmby Hills, where only one condo was reported sold in November 2019 and none in November 2020. Looking for a pattern, one would think the average difference between reported listing price and closing price (selling price) would tell several stories. They would tell us if buyers were using COVID as a vehicle to level the playing field, if the increase in inventory has leveled the playing field, or if everyone’s mindset had changed at all during COVID.
Look at the wide swing in variance. Look at both the differences between the types of properties and the statistical spread between them.
Beverly Hills – +58% SFRs +30% Condos
Bel Air / Holmby Hills – +73% SFRs N/A
Westwood – -12% SFRs -6% Condos
Brentwood – +3% SFRs +10% condos
Palms / Mar Vista – -4% SFRs -16% condos
Santa Monica – +10% SFRS -23% condos
There can only be one explanation; I took too small of a slice for a meaningful statistical analysis. It doesn’t take much for one sale to warp the numbers. I used the month of November as an indicator of pre and post COVID mind-sets. So much of real estate is focused on the psychology of the negotiations, and so much of that agenda is dictated by the mindsets of the principles. As you can see, COVID has wreaked havoc in the marketplace, leaving it almost impossible to professionally determine Fair Market Value. Now that we have a vaccine in sight, I believe the mindsets are about to change and a year from now our transactions will return to a sense of normalcy.
Income properties are a great investment now with this confusion. I predict that in less than five years they will shine as genius investments made during a very trying time when no one else made the move.
Finally, my father had a saying; “This is a free country, and you are free to be stupid.” It seems incredulous that there are still people who are not wearing masks, endangering the rest of us. If you hold strong personal beliefs that require you to display your independence by not wearing a mask or practicing social distancing, I will respect that. But I will not permit you to walk into one of my listings or endanger my health or the health of my clients.
Be safe, be healthy, pay attention to what the science says and focus on the foot race to the finish line, your inoculation of a successful vaccine. The biggest tragedy through all of this will be the person who is infected the day before he’s to be inoculated.
— Mark Rogo