Last year around this time many media outlets issued what they thought were going to be dominant trends in housing for the year ahead, only to have the pandemic arrive in March and upend all predictions (along with the entire world). But while predictions all got thrown out the window in 2020, that’s not stopping us from taking our best guess at what 2021 might hold in store.
So here are our thoughts on what lies ahead for housing this year, served with just a pinch of salt…
Low rates continue to power sales
A big driver of housing’s robust activity through 2020 was the low interest rate environment. According to Selma Hepp, deputy chief economist at CoreLogic, low rates are expected to continue through 2021, which will “ameliorate some of the affordability concerns resulting from rapid home price appreciation seen in 2020.” Said another way, attractive mortgage rates should continue to give buyers more purchasing power, especially first-time home buyers.
Demand likely to remain high
While swooning in the first months of the pandemic as folks sheltered-in-place, the housing market burst back with a vengeance in the latter half of 2020. Along with the attractively low interest rates, a lot of homebuyers were motivated by both a desire to move out of city centers as well as the freedom to relocate created by the shift to more telecommuting.
While it’s unclear how permanent this shift to remote work will be for all workers, the demand that drove sales in 2020 is likely to remain high in 2021. And with inventory still lagging behind and construction of new homes still struggling to keep pace, the coming year is likely to see more of the same: more buyers for fewer homes, and fierce competition.
Inventory could improve…or not?
When it comes to historically low housing inventory, 2021 might see some improvements…or not. Hepp believes that inventory levels could be boosted “partially by sellers who have been on the sidelines, partially from distressed homeowners, and partially from more new construction.”
But even with all three forces at play, it most likely won’t be enough to close the wide gap between supply and demand in the market, leading to sustained competition among buyers and further home price appreciation, “albeit at a slower pace than seen in 2020.”
Prices likely to rise
One piece of good news for sellers (and less good news for buyers) is the continuing supply and demand trends are likely to keep home prices rising. Lawrence Yun, chief economist for the National Association of REALTORS® predicts U.S. home prices will rise 3% in 2021, following a 6% year-over-year gain this year. He adds that home prices are in no danger of declining because of the pronounced shortage in housing supply, and that demand, especially the WFH-driven demand for larger-sized homes, will continue.
Low rates on the clock?
While Yun predicts mortgage rates should remain stable at or near 3% through all of 2021, that doesn’t mean that the rock-bottom rates of 2020 will be here forever.
Economists have pointed out that while the Fed has indicated they’re not likely to raise rates anytime soon, that’s not the only factor at play. New policies enacted by the incoming presidential administration, the broader availability of a COVID-19 vaccine, as well as what is projected to be booming growth in Q3 and Q4 of 2021 could all potentially conspire to bring an end to the ultra-low rates that we’ve seen this year.
*Adapted from an article published by Jared Fernley at Guaranteed Rate Affinity.
This material is not intended to be relied upon as a statement of the law, and is not to be construed as legal, tax or investment advice. You are encouraged to consult your legal, tax or investment professional for specific advice. The material is meant for general illustration and/or informational purposes only. Although the information has been gathered from sources believed to be reliable, no representation is made as to its accuracy.