The housing market has been on fire this year with record-low mortgage rates and a sudden wave of relocations made possible by remote work – a result of the coronavirus pandemic. Meanwhile, home prices have pushed new boundaries as inventory remains low and buyer demand continues to surge. As we near the end of 2020, here’s a look at the expectations from some real estate experts for 2021.
Danielle Hale, realtor.com chief economist: We expect sales to grow 7 percent and prices to rise another 5.7 percent on top of 2020’s already high levels. While we expect mortgage rates to tick up gradually, sales and price growth will be propelled by still strong demand, a recovering economy, and still low mortgage rates. High buyer demand and still-lagging supply will keep prices growing, but at a slower pace than 2020 as buyers contend with mortgage rate and price increases that create affordability challenges.
Lawrence Yun, National Association of Realtors chief economist: Home sales surprised with a surge in the second half of 2020 and the momentum will carry into 2021. The record low mortgage rates have been the key factor for home buying even in a difficult job market condition. As we enter 2021, jobs will steadily recover especially knowing that the vaccine distribution is just around the corner.
The interest rates will continue to be favorable since the Federal Reserve has indicated such. And supply will rise based on the higher number of housing starts of single-family homes. This will give consumers more choices, and more importantly, will tame home price growth. Demand could be stronger in the outlying suburbs and in more affordable metro markets, while the downtown locations could witness softer demand.
Tendayi Kapfidze, LendingTree chief economist: The housing market should continue to be a bright spot in 2021. Key to this will be mortgage rates that we expect to remain low as the Fed keeps up its security purchases. A less appreciated factor is a savings rollover from 2020 that will support home purchases by wealthier households. Additional fiscal stimulus could also find its way into the housing market. The new Biden administration’s policies may also increase access to the housing market through things like down payment support. Finally, student loan forgiveness could boost the ability of many to afford buying a home and saving for down payments.
There are some downside risks to this outlook. The economy will be recovering as vaccines lead us down the path of normalcy, but the labor market could remain weak. A tepid labor market recovery would be accompanied by tepid income growth. Job losses are moving up the income scale and transitioning to permanent losses from temporary. Lending standards are likely to tighten further as the end of forbearance and foreclosure moratoriums are a wild card, potentially weighing on home prices in some areas. The rent crisis is another wild card and could bleed in the owner-occupied market via adding supply or affecting the financial markets.
Jeff Tucker, Zillow senior economist: We expect to see the housing market continue its bull run from this summer and autumn well into 2021. Home value appreciation will approach 9% or even 10% by July, before cooling somewhat down toward 7% appreciation. This rapid price growth will be driven by the same factors that took the steering wheel in 2020: strong demographics, low mortgage rates, and inadequate supply.
The Millennial generation is moving into their mid-30s, bringing a wave of demand from renters looking to buy their first homes. Mortgage rates may inch back up to around 3%, but even at that level, they will be making home purchases more attractive all along the price range. And although builders are finally firing on all cylinders delivering new homes to the market, it will take them a long time to make up for the homebuilding deficit we accumulated from 2008 to 2019.
The clearest barometer we have that reflects all these dimensions of the housing market is active inventory, which is down more than one third year-over-year. That suggests continued fast price appreciation ahead and fierce competition between buyers.
Rick Sheppard, Associate Broker, RE/MAX Achievers, Inc: As the coronavirus is beaten down and eventually knocked out, more homeowners will be mentally and physically ready to sell and many will sell and also buy. The federal government will pull back from its current downward influence on mortgage rates, allowing the finance market to reach a more natural plateau – somewhere in the 3.5%-4% range – still very attractive to borrowers who did not buy in 2020. The combination of more sellers, slightly higher mortgage rates, and fewer buyers will stabilize real estate sales volumes and home prices. More specifically, sales volumes will level off and start to decrease by mid-year 2021 while prices continue to rise but at a decreasing rate throughout 2021.
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