The homes sold through ARMLS in March had an average price of $517,774. The equivalent figure for February was $507,518 while that for March 2021 was $413,957 and for March 2020 was $353,017.

This means if you owned an average home in the ARMLS area, it gained more than $10,000 in asset value during a single month. When people ask why it is better to own than rent, here is one data point they might consider. And it is not just a single month that pops out. The gain over the last year was $103,817. The average home made more money than the average working family. On top of that, gains in home value are not taxable if it is your sole residence and the gain is less than $500,000 for married taxpayers filing jointly ($250,000 for individuals). The average working family pays a significant amount of income tax, social security and Medicare from their gross income. Investors pay tax on their capital gains, but they also get to deduct 100% of any mortgage interest as well as theoretical annual depreciation (don't laugh).

Because investors can end up with their assets depreciated to very low levels, even zero, they are usually highly incented NOT to sell their assets. If they did they would have to pay capital gains tax on the entire depreciation as well as the real increase in value. It also explains why 1031 exchanges are so popular with investors. It allows them to sell without paying capital gains tax, but they stay invested in the market.

Those people who pulled out of a home purchase at the start of the COVID-19 epidemic must be kicking themselves. The average home has increased in value by $164,757 since March 2020, which is an increase of 47%. I did warn buyers in the daily observation of March 18, 2020 that if they pulled out of their purchase they would probably be making a poor decision. In the event it was much worse than that - it was a terrible decision.

The last 2 years have been atypical for the housing market and we do not expect the next 2 years to deliver the same appreciation. Vastly higher prices combine with a sharp rise in mortgage interest rates to make it impossible for an increasing number of people to qualify for the loan they would need. There is plenty of latent demand for homes, but it does not translate into actual demand if the buyers cannot qualify. We are left with demand from cash buyers, the most significant of these being investors. The general mood among cash investors in residential real estate can be realistically described as euphoric. That is troubling in itself.

One wonders how euphoric they will feel when their rents start to decline. The ARMLS database suggests rents are already on a declining trend. The average lease list price per sq. ft. was $1.69 yesterday. It was $1.98 this time last year.

The first natural response from investors will therefore be denial. I would suggest that extreme caution would be a wiser reaction.