COVID-19, lockdowns, a volatile stock market, small businesses closing, pervasive fear and uncertainty – it’s been quite a ride in 2020 already. But housing markets across the country have remained surprisingly resilient, with home prices continuing to rise. Still, there doesn’t seem to be any end in sight for all this coronavirus business and the continuing effects. So what will 2021 bring? While uncertainty is likely the only certainty, there are some observable trends. So here’s what home buyers need to know about the housing market looking ahead to 2021.
Home Prices May Drop
Although the pace has slowed somewhat, home prices have been increasing for a good long while. Looking ahead at the housing market to 2021, the slowing price increase is expected to undergo a rapid deceleration, possibly resulting in falling home prices.
“In its report last month CoreLogic said it expected that the housing market may be equipped to lead the broader economy through the recovery but that home prices increases would slow and that the gain from April to May would be only 0.3 percent. They went on to predict that 2021 would bring the first decline in nine years, and by April 2021 the national price gain would turn negative, down 1.3percent.”
In fact, this projected price decline is expected to be fairly widespread, with “ 125 metro areas [having] at least a 75 percent probability of price decline by May 2021 and prices . . . expected to retreat in every state.” This can be explained in part by an expected increase in demand and decreasing unemployment. But whatever the explanation, 2021 looks favorable for being a buyer’s market.
Mortgages Rates Will Remain Low (Probably)
Another thing that will favor buyers is the fact that interest rates are very likely to remain low. Recent months saw historically low mortgage rates as a result of officials attempting to counteract the negative economic effects of COVID-19. These low rates have helped to increase demand and are expected to stay low.
But the other possibility is that, if this trend continues on its current course, the housing market in 2012 could become a seller’s market rather than a buyer’s market. . .
“For 2021, most experts agree that mortgage rates will remain low. . . .By 2021, Fannie Mae’s US housing market forecast sees mortgage rates dropping to 2.9%. If this comes to fruition, demand for homes for sale will continue to increase. High demand . . . is likely to lead to a seller’s market in 2021.”
But, on the other hand, if a COVID-19 vaccine comes to fruition, mortgage rates may increase. In such an event, the economy is likely to pick up dramatically. So, again, uncertainty rules: 2021 is looking to be a buyer’s market, but could also be a seller’s market.
The Inventory Shortage Will Continue
For a few years now, there has been a shortage of inventory in the housing market. And there is no evidence to indicate that this will change much in 2021. Inventory isn’t expected to exceed or even match demand.
When it comes to inventory in the 2021 housing market, experts say the following: “Housing development continues to lag across the nation. Although the US housing market did see a rise in homebuilding during May throughJuly, data for August 2020 reveals a drop. . . . With the supply of new and existing homes remaining low in Q4 2020, it’s unlikely a large enough shift will happen by 2021 with regards to inventory in order to change the direction of the real estate market.”
2021 Housing Market – Buyers or Sellers?
According to other industry watchers, the major factors at play in the 2021 housing market are:
- Continuing low mortgage rates
- Continuing low inventory
- Rising demand (after pent-up demand owing to changing conditions)
- Increasing home prices (instead of decreasing, as some predict)
And all of this means that 2021 may be a seller’s market. “Sellers are likely to have the upper hand when it comes to negotiating prices.”
Local Markets and a Local Agent
The upshot of these predictions for the 2021 housing market, is that uncertainty will still play a major role. It may be a buyers market, but it could also be a seller’s market. The problem in making such predictions is that the same conditions never obtain across the board in every market. Local markets can vary widely.
This means, then, that for buyers the services of an experienced local real estate agent will be more important than ever. Most buyers will need an agent with extensive experience in the local market to guide them through all the uncertainty and changing conditions. And we have the agents who can do this.