2021 US Housing Market Predictions
Here are the latest housing market predictions and forecasts for 2021.
The global pandemic shattered the world order and the US economy suffered its biggest blow since the Great Depression in the second quarter. The for-sale housing market showed incredible strength in 2020, and we expect 2021 will be even stronger. As prices keep climbing month-over-month, it just shows the resilience of the US housing market in the face of an ongoing economic recession. Annual home sales growth is expected to be the highest in almost 40 years as life and financial certainty brings more sellers into the market to meet the heavy demand and technology allows for faster connections with interested buyers.
The global pandemic shattered the world order and the US economy suffered its biggest blow since the Great Depression in the second quarter. The for-sale housing market showed incredible strength in 2020, and we expect 2021 will be even stronger. As prices keep climbing month-over-month, it just shows the resilience of the US housing market in the face of an ongoing economic recession. Annual home sales growth is expected to be the highest in almost 40 years as life and financial certainty brings more sellers into the market to meet the heavy demand and technology allows for faster connections with interested buyers.
Land and material availability and a persistent skilled labor shortage will continue to place upward pressure on construction costs resulting in limited housing supply. As the economy improves with the deployment of a COVID-19 vaccine, interest rates will increase in 2021, further challenging housing affordability in the face of strong demand for single-family homes. Nevertheless, the pandemic has increased the desire for houses with a bit more space and a garden. Couple that with record-low interest rates, and prices are rising dramatically all over the country from urban-to-suburban markets.
The combination of intense demand and the low mortgage rates has pushed home prices to levels that are making it difficult to save for a down payment, particularly among first-time buyers. While we still face economic and health challenges ahead, industry experts believe the housing market will remain strong and is set to break more records in 2021 for housing sales, rents, and home prices. A report from the Federal Reserve Bank of New York found that the median household expects to increase their spending by 3.7% in the next twelve months, the most optimistic outlook since 2016.
Mortgage Rates have hit a new record low in the first week of 2021. Mortgage applications increased 1.1 percent from one week earlier, according to data from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending December 11, 2020. Despite a full percentage point decline in rates over the past year, housing affordability has decreased because the effect of lower mortgage rates (for buyers) is being evened out by double-digit home price growth.
According to some industry sources, rates are expected to rise modestly in 2021. The combination of rising mortgage rates and increasing home prices will accelerate the decline in affordability and further squeeze potential home buyers during the spring home sales season. According to Bankrate’s latest survey of the nation’s largest mortgage lenders, the benchmark 30-year fixed mortgage rate is 2.840%.
According to Realtor.com, the December national median listing price was $340,000, up 13.4% compared to last year. Large metros saw an average price gain of 8.8% compared to last year. Assuming a buyer provided a 20% down payment, the principal and interest payments on the mortgage would have been $1,669 a month.
Contrast that with December 2019, when the median price was around $300K and the average interest rate on a 30-year mortgage was around 3.58%, according to Freddie Mac. A buyer faced a payment of $1,579, or $90 less a month than what he is paying now. Assume that builders and sellers had met buyer demand, keeping prices flat over the year. Lower mortgage rates would have resulted in a monthly payment of $1,482, or a savings of $97 a month as compared to a year before.
Therefore, low mortgage rates help but don't eliminate the risk of affordability crunch that the housing market could still face if home prices continue to rise at a rapid pace. But if rates stay this way or possibly even go a little lower in 2021, then it will keep the homebuyers active and they would keep the housing market afloat.
Resources:
https://www.noradarealestate.com
https://www.forbes.com
https://www.zillow.com
