Happy New Year! I know that most folks are happy to have 2020 behind us and hope that 2021 will bring back some sense of normalcy. Maybe this is a year where you are setting some real estate goals and are wondering what sort of market to expect. I have taken some time to research what experts are forecasting for 2021 related to home prices, interest rates, a new President, and location. I hope this consolidation of ideas helps you understand our market. Please reach out to me if I can do anything to help you or anyone you know buy or sell a house in the NRV!
Bottom Line: Continued low interest rates and sky high buyer demand will likely drive home values up this year, though not at the rate we saw in 2020, possibly leveling out through the year as new construction comes online. More stringent lending conditions, strong equity positions, and high buyer demand make it unlikely that we are experiencing a bubble that will pop anytime soon.
Prices
National Association of Realtors Chief Economist Lawrence Yun believes home sales will rise 8% in 2021.
Median sales prices increased by over 15% Oct 2020 compared to 2019 making it the 104th straight month of price gains - something not seen since 2006. 2020 home sales nationally were up 7.4% from 2019 - the result of continued increase in buyer demand.
How are so many people still able to buy with Covid’s affect on the economy? Renters seem to have been affected more than homeowners by Covid as many who own homes were able to have jobs that allowed them to continue to work remotely.
What will stop the dramatic rise in prices? Here are a few thoughts:
An affordability ceiling where a family’s income leaves them unable to afford a home - enough of this and prices will level off
Builders of new homes starting to meet the demand of the number of buyers who want to purchase a home. New construction is planned to rise (which we can see in our area) which could help level off prices.
Finally, enough sellers enticed to enter the market. Sellers who were nervous to list because of the economic uncertainty might list this year which will create more housing inventory. The flip side of this is that buyers who were nervous might also join the market.
Economist Matthew Gardner predicts sales prices to go up 4% in 2021 (though this was also his 2020 prediction which was exceeded), less than the increase in 2020 because of the affordability ceiling that interest rates can only help so much.
As Covid begins to come under control, the year should return to its normal cycle with an uptick in homes for sale and prices in the spring which should decrease going into the fall and winter months.
Low Interest Rates
Historically low interest rates could hit their low in q1 of 2021, however will likely not rise much through the rest of the year.
Experts’ predictions in the increase of rates range from 3.1-3.6%.
If the Covid vaccine roll out is slow, the economy could dip, causing rates to drop again.
The Biden Presidency
Early indicators point to the Biden presidency being good for buyers
Biden hopes to enact a first time homebuyer credit to help new buyers afford their down payment.
He also wants to pump money into affordable housing with talks of wanting to pump $65 billion into new builds.
There could be obstacles for investors:
Biden has talked about rolling back some mortgage interest deductions and the ability to receive inherited properties at a stepped up basis (in a sense tax free).
He has also talked about putting an end to 1031 tax free exchanges, though this is unlikely.
Are We in the Middle of a Housing Bubble?
Yun does not believe the U.S. is currently in a housing bubble because of the amount of buyer demand in the housing market. This demand should ensure that our present day will not mirror the Great Recession.
Forbearance due to Covid 19 affects about 5% of homeowners as of Nov. 30 which is down by 2% since May. These forbearances, where banks are allowing owners to delay mortgage payments, should not lead to a flood of foreclosures that ‘burst’ the market because:
Buyers are in a much stronger equity position than in the great recession - the result of prices that have risen and increased lending standards
The incredible buyer demand will make it easy for sellers to sell that need to, allowing them to avoid foreclosure
Even if the foreclosure rate doubles, it will still be lower than the national average.
Location
“A recent Harris Poll found that over 65% of homeowners would consider moving to a different area if they were allowed to continue remote work permanently.”
People are leaving busy and expensive city centers for more affordable and attractive places to live. Fortunately, the NRV is one of these places with our mountain setting, slower pace of life, and culture brought by the university.
Conclusion
Continued low interest rates and sky high buyer demand will likely drive home values up this year, though not at the rate we saw in 2020, possibly leveling out through the year as new construction comes online. More stringent lending conditions, strong equity positions, and high buyer demand make it unlikely that we are experiencing a bubble that will pop anytime soon. While there is still a threat of an economic downturn in the near future, most experts agree that the real estate market in 2021 should continue to stay strong.