Finally, The Year That Wouldn’t Quit is in our rearview mirror. And while 2020 was a tough year for nearly every industry in the world, the residential real estate market unexpectedly thrived. With a vaccine finally arriving and hopes for a more normal year, what is the 2021 real estate forecast? What can buyers, sellers, and real estate professionals expect moving forward?
Real Estate in a Pandemic: 2020 and Residential Home Sales
We have talked at length about this before (read more about it here), but 2020 turned out to be an explosive year for residential real estate throughout the country. Though home sales initially took a dive in March and April, the market quickly rebounded.
Three factors led to a hot sales market in 2020:
- Interest rates at historic lows (sub-3% for many buyers on a 30-year loan)
- An increase in people leaving cities and purchasing homes in the suburbs
- Low inventory in many markets
Even with a 2.5% dip in sales at the end of 2020 and a sharp decline in sales in the spring, total home sales increased more than 25% year over year. Home prices rose, too, up 14.6% compared to 2019 data.
2021 Real Estate Forecast
Can the real estate market maintain that momentum? Most experts agree that the 2021 real estate forecast looks favorable.
The Rise of the Suburbs
While healthcare workers are administering vaccines across the U.S., it will take months – maybe even longer – for life to return to some semblance of normalcy. Plus, many workers adapted to life at home in 2020 (and we learned we kind of like doing conference calls in our PJs). We created well-functioning home offices, revamped our work schedules, and discovered new hobbies and interests.
In the last year, workers left crowded cities in search of more room to sprawl. The 2021 real estate forecast predicts those workers will stay in the suburbs – and many more will join them.
“Even before the pandemic, homebuyers looking for affordability were finding it in areas outside of urban cores,” says Realtor.com Chief Economist Danielle Hale. “The pandemic has merely accelerated this previous trend by giving homebuyers additional reasons to move farther from downtown.”
Interest Rates in 2021
Interest rates can’t stay this low forever. Projections indicate interest rates will slowly rise in 2021. However, they will still be lower than we have seen in quite some time – perhaps remaining below 3.5% even into the end of 2021.
Low interest rates are great news for home buyers. However, with so many current homeowners choosing to refinance their existing mortgages rather than moving to a new home, buyers can expect continuing inventory shortages in most markets.
Millennials Moving Up
The 2021 real estate forecast also predicts millennials to shape the home-buying market. Older millennials will be turning 40 this year, while the youngest among them are out of college, established in their careers, and ready to purchase their first home.
Millennials comprise the largest generation in history – larger than the Baby Boomer generation. Older millennials have growing families, and many who once sat at an office desk are now working full-time from home. Therefore, they’ll be moving up to bigger homes in 2021.
Meanwhile, the younger millennials are taking advantage of low interest rates to purchase homes for the first time. Staying home during the pandemic means many young people could save more money for a down payment, allowing them to purchase real estate in 2021.
Buying and Selling in 2021
2021 will continue to be a strong year for residential real estate.
We will likely continue to see home prices rise this year – perhaps by as much as 5%. And while the real estate market will see a small drop in overall sales, experts still predict a 7% increase in sales growth in 2021.
Sellers will enjoy rising housing prices. Buyers will have better luck finding the perfect home, with inventory finally starting to catch up from the firestorm of 2020.
There are still many factors at play in this new year. The vaccine is here, but we don’t know how long it will be until most Americans are immune. And even when that happens, the economy will still be reeling from a year of shutdowns and quarantines.
Many remain unemployed. Businesses are closed permanently. And the CARES Act money that helped many pay their mortgages will expire, leaving millions of Americans struggling to make ends meet. We don’t yet know how this will all impact the housing market and the economy as a whole.
For now, however, the 2021 real estate forecast remains favorable. Real estate professionals, buyers, and sellers should continue to see a thriving market so far this year.