USA NEWS By Devon Thorsby, Editor, Real Estate
THE CORONAVIRUS pandemic that took over much of 2020 led to some unexpected outcomes in the housing market. After a brief initial period of low activity in home sales, homebuyer activity vastly outweighed available homes throughout much of the U.S. for the remainder of the year as people sought more space, ideal home features and affordability.
Now, with the promise of widespread access to COVID-19 vaccines on the horizon, extended time at home is shaping how people live every day, as well as what they want from their home and where they want to live well beyond the the pandemic.
In 2021, here are a few trends shaping up for the housing market:
- Interest rates are expected to remain low but increase gradually.
- Average home prices will rise.
- Home inventory will remain low, despite plenty of new construction.
- Homebuyers will stay focused on the suburbs.
- Renters hurt financially by the pandemic will continue to struggle, and rental assistance is needed.
Here’s what experts are predicting for buyers, sellers, renters and new construction in 2021.
Buying
The coronavirus pandemic drove mortgage interest rates to historic lows for most of 2020, and all signs point to 2021 beginning with continued historically low interest rates. On Dec. 17, Freddie Mac reported the average mortgage interest rate for a 30-year, fixed-rate mortgage was 2.67%, more than 1 percentage point lower than the average rate at the same time in 2019 and a new 50-year low for average rates.
Low interest rates, the continued creation of new households across the U.S. and a desire for more space among existing homeowners drove demand through the roof in 2020. Many areas were seller’s markets, meaning there weren’t enough homes available to match the number of active buyers.
In many ways, the high demand and positive growth in home prices over the course of 2020 were a surprise, as skyrocketing unemployment created concerns about unpaid mortgages on a widespread scale.
Instead, the housing market continues to flourish, although dense urban centers are seeing less interest as many buyers flock to the suburbs and outlying areas for more space, affordability and options that aren’t necessarily tied to an employer’s location. Walkability to shops or outdoor attractions still has its benefits, but buyers appear focused most on having enough personal space for everyone in the family.
Many of the buyers (and renters) leaving the city for the suburbs were likely to make that move eventually, says David Sigman, executive vice president and principal of LCOR, a real estate investment, development and management company based in New York. “(The pandemic) just accelerated that, and that’s why we saw this rush to the suburbs,
With expectations for higher rates of homebuilding and a relaxation of the pent-up demand following the shut-downs early in the pandemic, experts expect sellers to have the advantage in 2021.
But homebuyers shouldn’t feel concerned about being able to find a home. If the economy remains stable, mortgage interest rates will likely tick back up over the course of the year while remaining low from a historical perspective. Realtor.com predicts mortgage rates will end the year with an average around 3.4%.
Because the market is expected to remain in favor of sellers throughout 2021, Samalin says her company is focused on helping buyers navigate the homebuying process in a way that will help them avoid getting emotionally caught up when faced with stiff buyer competition.
For buyers who are still worried about job stability, holding off on a home purchase may be the right move. However, lenders have proven through the course of the pandemic that they are willing to work with borrowers facing unemployment or expensive medical bills in order to avoid a future foreclosure crisis.
Selling
A major contributor to the low supply of homes on the market in the latter half of 2020 has been the fact that many homeowners are choosing not to relocate now – especially if they’re already in a house with plenty of space for remote work and virtual schooling.
While low mortgage interest rates can be an incentive to buy a new home now, they’re also an incentive for people to refinance and stay in their current home longer. “Making mortgage money so inexpensive contributes to the ‘why move?’ (perspective),” says Mark Fleming, chief economist for title insurance company First American Financial Corporation.
Additionally, most home sellers don’t effectively increase housing inventory without also contributing to rising demand. “They’re turning around and buying a home, usually in the same market,” says Danielle Hale, chief economist for realtor.com. “Ultimately, they don’t lead to a net increase of inventory.”
The expected increase in home prices, however, may entice some owners to sell. With home prices closing out 2020 around 7.6% above the average home price at the end of 2019, realtor.com predicts 2021 will yield an additional 5.7% increase in home prices by the end of the year.
Keep in mind that these numbers represent the expectation for housing on a national scale. The effects on individual housing markets will vary widely. Speaking with a local real estate agent can help you learn more about how home prices and activity are faring in your area.
Of course, the continuation of the pandemic as the vast majority of the population waits for access to a vaccine leaves room for uncertainty. Hale warns of the possibility of a double-dip recession that could remove some buyers from the market as affordability again becomes a key concern.
Even if that happens, however, current homeowners are likely to be largely OK, Hale says. “Homeowners tend to be in a point in their lives – they tend to be a bit older, they have more savings, they have resources to tap if something happens,” Hale says.
Bottom line. Expect a strong 2021 Real Estate Market
