When pandemic lockdowns put the U.S. housing market in a freeze last spring, pundits claimed the industry was headed for another crash, not unlike the one in 2008. But thanks to low mortgage interest rates, depleted inventory, and high demand (from younger buyers entering the market), 2020 was actually a banner year for real estate. And while the rest of the global economy was teetering, residential real estate helped prop up the marketplace.
What’s in store for the housing market in year 2 of the COVID-19 pandemic? We’ve got five predictions:
1) Millennials and first-time home buyers will drive the market.
Millennial homebuyers made up the biggest cohort of purchasers in 2020 (38% to be exact), and that’s not going to change in 2021. A majority of those millennials were also first-time homebuyers. The largest generation and the one in the thick of traditional homebuying years, millennials will drive the housing market for years to come.
However, first-time homebuyers will face greater challenges than generations before them. The National Association of Realtors (NAR) reported that the median household income for first-time buyers in 2020 was $80,000, a whopping 16% increase from a year earlier.
2) Home values will continue to appreciate.
Housing inventory continues to be tight, and this will drive prices upward for the foreseeable future. Median home prices in the fourth quarter of 2020 were up 10% nationwide. And as more buyers who put home purchasing plans on hold last year because of the pandemic enter this low-inventory market, housing prices will keep climbing. NAR predicts a 3% overall increase in home values nationwide in 2021.
Another critical factor driving home values upward is the increasing number of remote workers (a trend that is not going away even once the pandemic ends). As more employees move into home offices, today’s homeowners and buyers crave more space. That means more buyers upgrading to larger and more expensive homes.
3) Bidding wars will likely continue.
So long as inventory remains tight, the bidding wars of 2020 will continue this year. That, too, will contribute to price increases as well as potential affordability issues for younger and first-time buyers entering the housing market this year. Expected rising mortgage interest rates will also impact affordability in the months to come. However, President Biden’s proposed first-time homebuyer tax credit could help with potential affordability issues.
4) Housing supply will grow with the onset of spring.
Housing supply dropped to historic lows in 2020, with nationwide inventory declining nearly 30%. But industry experts at NAR predict housing inventory will gradually expand this spring, both as the sector gets its usual seasonal boost of existing homes hitting the market as well as with new housing starts projected to increase this year by almost 10%.
Those factors, combined with buyers wanting to cash in on still historically low-interest rates and sellers wanting to take advantage of high demand, should keep the market humming through the first half of 2021. In fact, Zillow predicts 2021 will see the biggest growth in annual growth in home sales in 40 years.
5) Suburban housing markets will expand.
Unsurprisingly, the global pandemic has made more and more people eschew city living in favor of wide-open spaces (or at least a home with a yard and no need to pass neighbors in apartment or condo hallways). The once growing demand for city-center condos, walkup apartments close to business and entertainment districts, and smaller-footprint single-family homes within biking distance of work has softened.
As more people move to remote work situations, they want more space in their residences for home offices and don’t have the same need to be within easy commuting distance of the office. This will be a boon for developers who can take advantage of lower-cost rural land for new residential construction projects.
The pandemic will continue to impact the housing market well into 2021. Ready to take advantage of low-interest rates and a booming housing market to start scouting for that dream home? At OVM Financial, we can help. Jumpstart your mortgage application process with our easy QuickStart application.
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