2021 is expected to be a seller’s market for homeowners as homebuyers face continued rising prices. The NAR’s housing forecast, released in December 2020, predicts that housing inventory will increase over the coming year despite the disruptive and destabilizing effects of the ongoing Covid-19 pandemic. This will alleviate some pressure for buyers, but those positives are likely to be overshadowed by rising prices and interest rates.
Rising Mortgage Rates Expected
The 2021 housing market’s general health is mostly dependent on bringing the Covid-19 pandemic under control and maintaining the K-shaped recession recovery. However, the NAR report predicts that mortgage rates will have a 2021 average of 3.2 percent, peaking at 3.4 percent by the end of the year. Year over year, the study forecasts existing home sales will rise 7 percent, with new builds up around 9 percent, and an overall homeownership rate of 65.9 percent.
The average time needed to close a sale should drop back from the highs experienced in 2020. With many areas of the country facing a high demand for housing stock, buyers will be confronted with the pressure for quick sales, which may prove challenging for inexperienced first-timers.
Supply and Demand Conditions Will Benefit Homeowners
Simple economics will benefit homeowners as the number of homes for sale on the market outstrips the number of buyers. The price increase rate will slow down, but steady demand for the small existing housing stock will result in prices hitting new highs. As current homeowners plan to sell their homes and upgrade to better housing, they can expect to experience pressures similar to first-time buyers.
The Problems of Affordability
Mortgage rates dipped to record lows throughout 2020 but were unable to keep prices in check due to the limited number of homes for sale on the market. As this trend continues, affordability will become a significant hurdle in 2021. Homebuyers who want to take advantage of the low mortgage rates will be under pressure to quickly move before prices inflate beyond their budgets.
Millennials and Gen Z Face a 2021 Seller’s Market for Homeowners
Millennials, by now the largest American generation, will continue to influence the housing market. A lower than average mortgage participation, with more millennials continuing to live at home or rent, will become more pronounced across the board. In 2021, millennials will be 25 to 40 years old. Expect to see them drive the first-time homebuyers market, with older millennials taking advantage of equity gains to trade up.
2021 should see Gen X and senior homeowners continue to benefit from their exposure to the property market’s sustained health over the last decade. Their equity gains will likely continue.
Related: Coming Boom of Housing Inventory as Baby Boomers Retire
Generation Z buyers will be up to the age of 24 in 2021 and are set to maintain their fledgling impact on the broader property market. Trends from 2020 saw Gen Zers leverage themselves with increasing debt by using smaller down payments to take advantage of lower mortgage rates. Most commonly utilized, low or no down payment loan types are VA mortgages, FHA mortgages, or USDA mortgages.
Early predictions about Covid-19’s disruption of the housing market failed to translate into falling prices. The seller’s market persists.
Many felt that Gen Zers would eat into savings for subsistence, decimating their potential down payments. However, reports from the NAR indicate that, if anything, personal savings increased due to a decrease in spending and expenses from staying at home more often.
Suburbs Will Benefit if Remote Working Continues
In the last few years, a trend of increased demand for suburban homes has emerged — further augmented by the rise of remote working due to the Covid-19 pandemic. This trend should continue due to the desire for space paired with a reduced need to live close to urban work areas.
It is unknown if this demand for suburban property will continue. Much depends on whether larger companies will continue to push remote working once a vaccine has been distributed.
2021 Housing Market Predictions
There is much uncertainty about how the economy and the housing market will react in the coming year. Most of this hinges on the US administration’s ability to contain the virus’s spread and roll out the vaccine in a comprehensive and timely manner. Thus far, the virus has had a surprisingly muted effect on the housing market. However, if ongoing lockdowns and restrictions continue, it may go into decline. The threat of a double-dip recession is still a serious proposition.
Despite these economic variables, Danielle Hale, Chief Economist for the NAR, predicts a seller’s market for 2021, suggesting that sellers will be in a better position than buyers with home prices hitting new highs. With plenty of buyers driven by low mortgage rates, home prices are expected to continue rising. However, this upward trajectory is likely to slow at some point in 2021. Hale notes that, for sellers, quicker sales will be a feature of the 2021 market.
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