Everyone had high hopes for 2020, but in a few months, the global pandemic and resultant economic impacts have made the housing market experience low sales and prices. However, the housing market had a sharp rebound in sales and prices. Even though other sectors struggle to thrive due to the stay-at-home orders and economic shutdown, the housing market is still lucrative.
Predictions for the housing market in 2020 were accurate. Freddie Mac forecasted that mortgage rates would be high, while Fannie Mae said that housing would bring about economic growth. Both predictions were undoubtedly correct, as we have seen in 2020. Even as economists ponder how the federal and state governments will handle COVID-19 and the economy next year, the housing market’s improvements will continue into 2021 following the economic rebound and affordability.
Below are some housing market forecasts and predictions for 2021.
1. Inventory
Even though the housing market is very lucrative despite the pandemic and poor economy, there has been no housing inventory improvement. The number of homes that are up for sale in 2020 is insufficient. There is an estimated shortfall in the number of newly constructed homes by about 4 million.
Surprisingly, the economic recession and spike in unemployment did not increase the number of distressed home sellers that would, in turn, increase housing inventory. Instead, there was a decrease in the number of houses in the market. Later on, in the fall of 2020, the inventory saw an improvement as more houses became available for sales than what was obtainable in the previous year.
We are foreseeing a continuous improvement in the inventory from the end of 2020 up to the spring of 2021. The inventory will improve such that by the end of 2021, it will spike for the first time since 2019.
2. Home Sales
By the end of 2020, we expect home sales to be 0.9% higher than in 2019 because of the strong buying season of 2020. However, at the beginning of 2021, home sales will reduce. Even with the low mortgage rates in the first half of 2021, buyers will not find the need to take advantage of the opportunity until they start to notice an increase in the second half of 2021. By then, buyers will rush to take advantage of the low mortgage rate. (You can learn more about mortgages and other real estate terms here.)
In 2021, home sales will be 7% higher than that of 2020 because the seasonal trend will normalize, and the rate of building new houses will improve from spring till the second half of 2021. The mortgage rates will have an average of 3.2% throughout 2021 and 3.4% by the end of 2021.
3. Home Prices
In 2020, the low inventory of houses for sale and the surge of homebuyers was the cause of the increase in home prices. By the fall of 2020, the prices of houses were 10% higher than the previous year. However, with the rise in the mortgage rates and more sellers in the market, home prices will start to reduce such that by the end of 2020, home prices will be 7.6% higher than that of 2019.
With the steady increase in the number of home sellers, home prices will continue to reduce into the spring and summer of 2021. At the end of 2021, home prices will increase a little, and the level for 2021 will be 5.7% higher than that of 2020.
4. Seasonality
The seasonal pattern of home sales in 2020 was very unusual because of the impact of the COVID-19 pandemic and the measures to curb its spread. Because of the stay-at-home order and other actions, there was a surge in the number of homebuyers more than home sellers. The high demand for homes during the home listing season made the prices very high and the time in the market very low.
Usually, during the Fall, the pattern changes to favor the homebuyers over the home sellers. But this was not so in 2020, and it became shocking for the buyers. In 2021, seasonality in the housing market will normalize, and investors will use 2020 as a base year to understand the trend.
5. Housing Trends
Home Offices
Because of COVID-19 and the stay-at-home order, more people are working from home. In 2020, one in every three home listings had a home office. As remote work is expanding into 2021, there will be more demand for homes with offices, internet connectivity, Zoom rooms, outdoor offices, and proximity to businesses and shops.
Suburban Migration
Because of the expansion in remote jobs and less need to commute to the office, many people will settle for affordable houses in suburban areas.
First-Time Buyers
In 2021, there will be an increase in the number of first-time home buyers. A large number of them will be Millennials and Gen-Zers.
Above are the predictions and forecasts for the housing market in 2021. Let this guide you as you plan for 2021. If you’re thinking of taking advantage of the housing market and investing in real estate this year, contact us today to see how we can help you get the most back on your return.
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