As we begin the new year, here’s a look at the expectations of three real estate experts for 2021. What they all have in common is they remain generally positive on the market and they see more of the same.
Selma Hepp, CoreLogic deputy chief economist:
While 2020 did not surprise us with its fair share of surprises, 2021 could still have more surprises in store for us. Still, expectations for the housing market remain generally positive. First, interest rates, which have motivated many buyers in 2020, are expected to remain low and will help ameliorate some of the affordability concerns resulting from rapid home price appreciation seen in 2020. In other words, low mortgage rates continue to provide greater purchasing power, especially for first-time homebuyers.
Second, first-time homebuyers will remain a strong force in the market as the largest cohorts of Millennials are turning 30 – critical household formation years. But also, the oldest Millennials are increasingly contributing to the trade-up market. As a result, 2021 home sales activity is expected to remain strong and outpace 2020 levels. Third, inventory levels are likely to see some improvement, partially from sellers who have been on the sidelines, partially from distressed homeowners, and partially from more new construction. But the housing market will continue to struggle with an imbalance between supply and demand, which will lead to sustained competition among buyers and further home price appreciation, albeit at a slower pace than seen in 2020.
Lawrence Yun, National Association of Realtors chief economist:
Home sales surprised with a surge in the second half of 2020 and the momentum will carry into 2021. The record-low mortgage rates have been the key factor for home buying even in a difficult job market condition. As we enter 2021, jobs will steadily recover especially knowing that the vaccine distribution is just around the corner.
The interest rates will continue to be favorable since the Federal Reserve has indicated such. And supply will rise based on the higher number of housing starts of single-family homes. This will give consumers more choices, and more importantly, will tame home price growth. Demand could be stronger in the outlying suburbs and in more affordable metro markets, while the downtown locations could witness softer demand.
Jeff Tucker, Zillow senior economist:
We expect to see the housing market continue its bull run from this summer and autumn well into 2021. Home value appreciation will approach 9% or even 10% by July, before cooling somewhat down toward 7% appreciation. This rapid price growth will be driven by the same factors that took the steering wheel in 2020: strong demographics, low mortgage rates, and inadequate supply.
The Millennial generation is moving into their mid-30s, bringing a wave of demand from renters looking to buy their first homes. Mortgage rates may inch back up to around 3%, but even at that level, they will be making home purchases more attractive all along with the price range. And although builders are finally firing on all cylinders delivering new homes to the market, it will take them a long time to make up for the home building deficit we accumulated from 2008 to 2019.