Property values in California are skyrocketing despite the pandemic. It plateaued for a few months during the lockdown period in March to June but picked up in August 2020 and there’s no stopping since then.
The number of homes sold for over $2 million dollars has risen by 196% in the past year. This was due to people’s wanting to have a bigger space for home office, exercise room, an open space for patio or balcony. This was triggered by the lockdown. People realized getting stuck in a small confined area for several months was claustrophobic.
My niece has been looking for a starter home but she couldn’t keep up with the price increases. Her budget is $500,000 thru a lender but the prices keep rising. The houses in the $500k category she is looking for are now in the $800s. Wild.
My nephew just closed on a single-family home with a price tag of $1,399,000 and yet he had to offer $1,575,000 to get the house. That’s the same category of homes listed for $1,200,000 just a few months ago. But he was still applying for a loan then and that few months cost him big money.
A Filipino couple who are realtors told me that they recently sold a house in just one week after listing it online. They got 13 offers from buyers and the owners sold it to the highest bidder, an additional $120,000 from the asking price.
An old house built in 1967 but renovated and staged, sold for an additional $475,000 more than the asking price.
My sister’s house where my parents lived, has increased in market value by $300,000 only in the past 10 months. The same is true with my brother’s house because they live in the same community.
I hope the property values hold and I hope people don’t repeat their mistakes in 2007-2008 when many borrowed money from the equity of their homes to buy several more properties which they couldn’t actually afford to pay. They were relying on the ideal scenario of borrow, buy, rent out, earn rental income that pays for the mortgage, in the meantime the property value increases, then sells at a huge margin. Get rich. Easy.
Millions ended up owing the banks much more than the value of their homes. With no tenant, no income to cover for the monthly mortgage payments, the banks foreclosed on their properties. So many overdid it, buying not three, four, but as much as a dozen homes which they couldn’t actually afford. They borrowed the money for downpayment hoping to rent the houses out, earn income, pay for the mortgage. Perfect. But unfortunately, the formula failed and crashed. Instead of accumulating wealth, they were back to square one.
This post is actually a reminder to those who lost their homes, savings, equity, 10 years ago. Banks like to entice people to borrow again from home equity. Borrow— that’s not free money. So don’t be tempted unless you can afford to pay for the mortgage without the need to rent it out.