From a broad perspective, the coronavirus pandemic has had an unequivocally negative impact on the nation’s economy. Yet, the real estate market remains one of the few exceptions to this trend.
Despite such vast turmoil, the 2020 housing market remained a strong seller’s market. While the 2021 real estate market may not show the same impressive growth compared to this past year, projections generally remain positive.
How the Pandemic Has Impacted Demand
It is no surprise that the pandemic is a leading influence over the state of the housing market. The most prominent factor in this regard is the fact that older homeowners have been reluctant to put their houses on the market. The widespread instability of the world has motivated them to forgo putting their homes up for sale.
This reduction in homes on the market has had a significant impact on demand. With fewer homes on the market to meet the demand of new home buyers, prices have soared. In fact, 2020 showed a record high of $320,000 as the median home price. Fewer homes on the market have also led to greater competition between potential buyers.
While this increase may not be ideal for buyers, the impact has been positive for sellers looking to make a decent profit.
General Trends in the Housing Market
In general, experts expect the 2021 real estate trends to be a milder version of those we experienced in 2020, which means you can expect the same positive trends to continue but to a lesser degree.
While this is good news for those considering listing their houses on the market, it does not tell the full story of what you can expect in 2021. Let’s look more closely at some of the most critical aspects of the 2021 real estate market.
Right now, mortgage rates are exceptionally low. Much of this has to do with fluctuations in the unemployment rate and general economic uncertainty related to the pandemic. It is hard to predict how long these rates will remain low, but as of now, this is a great time for refinancing.
Odds are, the mortgage rates will remain low for most of 2021. There are no current plans for an increase. And if one comes, it will not likely be significant at least until the second half of 2021 or the start of 2022. Even with a rise, mortgage rates will remain low relative to historical standards.
Housing prices in 2021 will change mainly based on location. On the one hand, existing homes in areas of lower population densities are increasing. Conversely, housing prices in many urban areas continue to show either no change or a decline.
Much of the increase in housing prices relates to low inventory. But there are other factors to consider here too. For one, many people are reluctant to live in areas of high population density. This reluctance arises from a fear of infection. Additionally, more people are working remotely than ever before, meaning there is far less demand for homes that offer a short commute to a downtown office.
As alluded to in the last section, the major trend for new home buyers is to move away from highly-populated areas. Migration towards the suburbs is a decades-long trend. In the past year, that pattern has only intensified.
There are a few reasons for this trend, one of which is the fact that suburban and rural land is typically cheaper than that which is located in a populous urban center. Spaciousness and relief from busy city life are also motivating factors for people of all ages to seek homes in the suburbs.
The 2021 real estate market will also feature an increase in new home construction. In keeping with the major trends, much of this new construction will take place in suburban areas. The reason for so much new construction is two-fold.
First, the lack of housing inventory has increased competition for purchasing existing homes. This has forced many to consider new construction as their only viable option.
Second, more people are spending more time at home as a safety precaution related to the pandemic. As a result, many are interested in larger homes than those available on the market. With more new homes built in the coming year, you can expect average square footage to increase as well.
Potential Political Factors
As always, political policies have the potential to alter the current trends of the 2021 real estate market. With the transition to a new presidency, such dramatic policy changes are even more likely. While there are no guarantees in the political realm, there are a few factors to keep in mind as we transition to the new year.
In response to the coronavirus pandemic, the Federal Housing Finance Agency (FHFA) has issued a moratorium on both foreclosures and evictions. There is no telling how long this moratorium will last. But at the very least, we know it will continue through the first month of the year.
It is possible that the FHFA could extend this moratorium, but there is no way of knowing for sure. If and when the moratorium ends this year, we can expect to see a rise in foreclosures. Meeting rent and mortgage payments has been challenging for many this year. Considering that fact, once the moratorium ends, there will be far more homes available on the market.
FIRST DOWN PAYMENT TAX CREDIT
As a part of his presidential campaign, President-Elect Joe Biden has proposed a tax credit for first home buyers. This credit is intended to aid new homeowners in saving for a down payment.
Among other measures, Biden has proposed a $15,000 credit to help lower-income individuals buy homes. Again, there is no telling if this proposal will pass in congress. But if it does, you can expect to see more potential buyers in the 2021 real estate market. This will effectively drive down demand and housing prices.
2020 was an unpredictable year in many ways. The activity of the housing market is no exception. Looking ahead, it’s likely that the 2021 real estate environment will remain friendly to sellers. While it is nearly impossible to make a perfect prediction, in all likelihood, the 2021 housing market will continue the positive growth from last year.