The strength in the 2020 residential housing market caught many people off guard.
With housing demand accelerating sharply during the pandemic, home sales and home prices both rose. Now, the combination of several viable COVID-19 vaccines and the promise of an economic recovery suggests the favorable housing trends that emerged in 2020 may be set to continue in 2021. Tight supply and strong housing prices present affordability challenges, however, so homebuyers may confront a slightly different landscape in the months ahead.
As we look towards what this year might bring, here are 5 housing market predictions for 2021:
1. Rising mortgage rates will temper housing demand
Economists foresee the record low mortgage rates of 2020 slowly increasing. According to Realtor.com’s 2021 Housing Forecast, mortgage rates will be closer to 3.4% by the end of this year. The 30-year fixed mortgage rate currently hovers around 2.875%, so the expected increase is almost half a point. Therefore, rising mortgage rates may impact the number of people able to afford homeownership. Some researchers argue that demand for new homes will stay healthy for the foreseeable future, however, as buyers weigh the financial burden of renting versus purchasing.
2. Home sales growth will be higher than last year
According to Zillow’s 2021 housing market predictions, annual home sales growth will be the highest in 40 years in the United States at an estimated 21.9%. The pool of potential homebuyers has increased, in part due to the pandemic. In particular, millennials are looking for first homes or trading up in housing size due to their desire to leave the major cities and find space for growing families. Although a recent survey from Realtor.com shows those who think it’s a ‘good time to sell’ now outnumber those who think it’s a ‘bad time to sell’—48% to 44%, respectively—for the first time since the pandemic started, any additional housing inventory that has come to market has yet to dampen prices.
3. Housing supply will be tight despite new construction
At the beginning of 2021, homebuyers can anticipate tight housing inventories. The uncertainty associated with the pandemic has stalled some new home construction. Although the U.S. Census Bureau found housing starts in November of last year to be almost 13% above 2019, new homes have not been sufficient for rising housing demand. However, if signs of a strong economic recovery emerge, inventory may start to normalize this year. Builders could resume previously delayed projects. In addition, slowly increasing mortgage rates and rising home prices may curtail some of the demand.
4. Residents will continue to leave New York City for the suburbs
With many companies announcing the shift to flexible working arrangements, people are relocating outside of many major cities, including New York. Research from The New York Times found that approximately 5% of New York City residents and 18% of Manhattanites left the city between March and May. Low mortgage rates and virtual learning have accelerated the suburban migration because families have the flexibility to move. Based on predictions by the CEO and co-founder of EasyKnock, Jarred Kessler, high-tax cities will see talent drains as people migrate to areas with lower living costs.
5. Remote work will drive the demand for more space
Post the pandemic, shortened in-person work weeks, digital collaborations, and hybrid learning environments will continue to transform our daily routines. New homebuyers are looking for houses that support work and learning from home. Larger families may reconfigure themselves so more generations can coexist in the same space, and kids will continuously adapt their learning environments to hybrid or remote learning models. More time in and around the home means homebuyers will look for features like home offices, multi-purpose living spaces, spacious backyards, and walkable communities.
If you are looking to buy or sell a home this year or want to discuss real estate trends in our northern New Jersey communities, I would love to assist you. Contact Victoria Carter at (973) 220-3050 or email email@example.com.