Anyone working in the housing market in any capacity – lenders, real estate agents, inspectors, or appraisers – knows that the market goes in cycles. Interest rates move up and down, home prices fluctuate, and supply and demand vary.
As the spring homebuying season approaches, it’s important for buyers, sellers, and real estate professionals to do their research on what to expect. Knowing what the industry gurus are predicting will help prepare everyone who may have skin in the game in 2021 to prepare, manage expectations and gain any needed advantage over the competition.
On the heels of 2020, when the housing market saw home sales and prices hit decade-plus highs following decade lows in the span of just a few months, analysts expect the winning streak to continue this year as seasonal trends normalize.
To get a clearer picture of the state of the housing market this spring, let’s examine some key factors that are trending up or down.
According to many economists and market watchers, home values are growing at their fastest pace in a generation and showing no signs of slowing down this year, as home prices are expected to rise 5.7 percent. Housing prices had already started rising before the pandemic arrived in 2020, but the pandemic created a rapid acceleration in double digits.
One of the main reasons for such an extreme pace of home price appreciation is the long-standing principle of supply and demand. Across the country, far more homes are needed to meet demand, but they have been in short supply in recent years, including 2021. To make matters more challenging, the pandemic limited homebuilders’ ability to fill the housing supply because they are running out of materials.
With the already limited inventory of homes for sale that brought out loads of buyers and kept many sellers pondering their options, home prices surged more than 10 percent over year-ago values. The large number of buyers in the market, including many Gen-Zers looking to buy their first home and Millennials, who are both first-time and trade-up buyers, will push home prices upward.
Home buyers in 2021 should prepare for a battle. They will face fierce competition and must act more quickly than usual to score their dream home. As “make-up buying” from the disruption of spring 2020 fades, home purchases in 2021 are expected to rise 7 percent, sparked by underlying demand. That demand will increase despite the fact that mortgage rates are expected to tick up gradually in 2021.
First-time home buyers will drive the jump in sales as the largest group of Millennials who are turning 30. That’s a magic age in the industry, considered to be critical household formation years. Also, the oldest Millennials are increasingly contributing to the trade-up homebuying market. As a result, 2021 home sales activity is expected to outpace 2020 levels.
Another reason for the expected jump in home sales in 2021 is a resurgence of sellers who have been on the sidelines, partially from distressed homeowners, and also from more new construction.
Mortgage rates have bottomed out in recent years. In 2021, they are expected to rise, but ever-so-slowly and only modestly. According to the Mortgage Bankers Association, rates are expected to average about 3.2 percent throughout the year and end up around 3.4 percent by year’s end.
While that’s likely enough of an increase to discourage some refinancing, the rates are still low enough to make homebuying attractive.
Home inventory is at a historic low. According to current industry experts, the current supply of homes for sale will only last 1.9 months, the lowest level since the series began in 1999. With inventories this tight, it is unlikely that existing home sales can continue to rise at 2020’s pace, which means there could be a minor slowdown in existing sales throughout 2021.
Days on market
It’s a great time to be a seller! Homes are already selling quickly as buyers try to capitalize on the still-low mortgage rates before they start to creep higher.
How fast are homes selling? Before the start of 2021, homes were typically on the market for just 21 days — meaning houses were snapped up two weeks faster than a year ago when it took about 41 days to move a home.
In 2021, getting a home under contract is expected to be at least as fast as 2020. That means buyers should take note and act fast when they see a property that covets. If they wait too long – even hours too long – they could miss the boat.
Of course, the amount of time it takes to sell a home varies greatly depending on local market conditions, demand, and seasonality.
With real estate market conditions constantly changing, it’s important for all the players in the game to keep up on the latest trends and news. As we covered, this year’s buying season favors the seller in many ways, but even slight shifts in the economic outlook, interest rates, or current events can reshape things in a hurry.
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Hale, D., Author, Ratiu, G., Vivas, J., Speianu, S., Bedo, N., . . . View all posts by Danielle Hale. (2020, December 17). 2021 housing market predictions and forecast. Retrieved April 01, 2021, from https://www.realtor.com/research/2021-national-housing-forecast/
Ostrowski, J. (n.d.). Mortgage rate forecast for second Quarter 2021. Retrieved April 01, 2021, from https://www.bankrate.com/mortgages/mortgage-rate-forecast/
Richardson, B. (2020, December 18). Experts predict what the housing market will be like in 2021. Retrieved April 01, 2021, from https://www.forbes.com/sites/brendarichardson/2020/12/16/experts-predict-what-the-housing-market-will-be-like-in-2021/?sh=235f6c4136dc
What is the average time to sell a House?: Zillow. (2020, November 30). Retrieved April 01, 2021, from https://www.zillow.com/sellers-guide/average-time-to-sell-a-house