US Housing Market Sales & Price Forecast 2021: Will It Crash? by Marco Santarelli
Here are the latest housing market predictions for 2021. The global pandemic shattered the world order and the US economy suffered its biggest blow since the Great Depression in the second quarter. It has been roughly one year when it put the housing market on hold for several months last spring. Back in March of last year, the real estate market looked to be headed into a steep decline due to widespread stay-home orders.
Since then, homebuyers, supported by low-interest rates, have kept the US housing market afloat. The pandemic has certainly affected every sector but residential real estate has been very resilient. The real estate sector has also been highly supportive of the economic recovery of the country. It has emerged as a pillar of support for the economy. 2020 was a record-breaking year for the US housing market.
The typical U.S. home was worth $266,104 in December, up 8.4% (or $20,587) from a year ago. A total of 5.64 million homes were sold in 2020, up 5.6% from 2019 and the most since before the Great Recession, according to Lawrence Yun, NAR’s chief economist. Sales also rose 0.7% from November and 22.2% year over year. Existing home sales reached the highest level in 13 years.
The housing market has been struggling to keep up with the demand for the past decade. In the middle of the pandemic, it has seen a boom in demand. Currently, there is an extremely tight supply of homes on the market, the lowest on record since the turn of the century. The millennials have aged into their prime homebuying years, and they are now the fastest-growing segment of home buyers.
In 2018, millennial homeownership was at a record low but the situation has changed markedly. They are no longer holding back when it comes to homeownership. According to the National Association of REALTORS’ Home Buyers and Sellers Generational Trends Report, millennials make up the largest share of the homebuying population at 38 percent.
The older millennials (aged 30 to 39) making up 25 percent of that and younger millennials (age 22 to 29 years old) making up 13 percent. These younger consumers are mostly buying first homes (86 percent of younger millennials and 52 percent older ones). According to Bloomberg, not only are millennials buying homes but their “starter homes” are multimillion-dollar homes rather than the traditional humble first property.
Millennials are expected to continue to drive the market in 2021 and the participation of first-time homebuyers and older millennials is widely forecast to be elevated. Hence, the “2021 housing market” is looking to be super-competitive for home buyers. With homebuyers active and supply still lacking, the current pace of home price growth seems unlikely to change in the near term.
Realtor.com’s market data for the week ending February 20, 2021, shows that the median listing prices increased by 14.5 percent over last year, notching the 28th consecutive week of double-digit price growth. With the continued supply-demand imbalance, this upward pull on prices is expected to remain consistent in 2021. If mortgage rates increase later in the year, it will affect the affordability and will test buyer demand in the months ahead.
Here’s how the national housing market has been trending for the past couple of weeks and its comparison with the time when the shutdowns were imposed in the country. Homes are selling quickly and the total number available for sale at any point in time continues to drop lower and lower.
More new listings are expected in March and April of 2021 as they traditionally do heading into spring. New construction, which has risen at a year-over-year pace of 20% or more for the last few months, will provide some additional relief with regards to short supply.
With 10 years having now passed since the Great Recession, the U.S. has been on the longest period of continued economic expansion on record. The housing market has been along for much of the ride and continues to benefit greatly from the overall health of the economy. However, hot economies eventually cool and with that, hot housing markets move more towards balance.
The housing market 2020 was running at a record pace in the early stages of the coronavirus outbreak in February 2020, with sellers continuing to gain leverage, and buyers benefit from lower mortgage rates. We saw some of the best home sales and housing starts to pace in more than a decade until February 2020.
Before the COVID-19 pandemic, Realtor.com’s national housing forecast for 2020 was that home price growth will flatten, with an expected increase of 0.8 percent. Inventory was predicted to remain constrained, especially at the entry-level price segment. Mortgage rates were predicted to likely bump up to 3.88 percent by the end of the year.
Buyers were expected to continue to move to affordability, benefiting smaller and mid-sized markets. The housing market predictions were pointing out that all the housing indices would trend upward for the nation as a whole as well as in every state, including the top 100 metro areas.
After the coronavirus pandemic came into being, the housing market forecast runs the gamut from optimistic to pessimistic. The fall in GDP associated with the coronavirus pandemic, and the rise in unemployment, was unprecedented. As the number of coronavirus cases grew and lockdowns began taking effect across the United States, real estate activity slowed dramatically. Both buyers and sellers pulled back from the housing market.
According to Zillow, after the third week of March, newly pending sales dropped each week through mid-April, hitting a low of 38.8% below 2019’s figures in a time period when sales usually heat up. Time on the market grew to three days longer than last year in early May, while list price appreciation fell to just 0.1% above 2019.
Year-over-year rent growth in the U.S. saw the biggest one-month slowdown in at least five years. About 3 million adults moved in with their parents or grandparents in April, bringing the number of adults living at home to the highest number on record.
Despite all of that, there were no signs that the housing market is about to subside. The housing market absorbed the shock relatively quickly and began to recover. Pent-up demand that was put on hold was unleashed starting in late April, then supercharged by even lower mortgage rates and changes in housing needs.
Annual growth in median sale prices peaked at 7.4% the second week of April, before plummeting in the early days of the market freeze and falling to 0.8% by late May. But after the freeze began to thaw, year-over-year growth rose sharply and steadily, hitting new highs of 13.8% by late October, according to Zillow’s data.
Before the pandemic hit the nation the supply of new housing was failing to keep up with demand. Although buyers were eager to close on houses, sellers were not so anxious to list their houses. Inventory was low compared to 2019 to start the year, and that gap widened nearly every week through early December.
Due to a very tight inventory, coupled with strong demand from first-time buyers, the housing market began to move incredibly fast. Sellers who did choose to list had little trouble finding motivated buyers who were looking to take advantage of low-interest rates. After peaking in early May, time on the market began to fall through early November as available homes for sale were scooped up faster.
Inventory declined every week starting in early June – by the week ending Dec. 12, it was 34.3% below 2019 levels. As of the week of Dec. 12, houses were typically on the market a median of just 16 days before an offer was accepted — up a handful of days from lows set in earlier weeks, but still a full three weeks (21 days) less than the same time last year.
Economic sentiment affected the U.S. housing market, too. People were reluctant or unable to show their homes, while others are afraid it won’t sell and thus didn’t list their homes at all. Recovery is also expected to be uneven. Housing markets that are more heavily impacted should expect a slower recovery than markets that were hit less severely.
If you’re wondering what the state of the housing market will be like over the next six months then here is some good news for you. The mismatch between supply and demand is driving prices higher, but this isn’t a housing bubble. Economic sentiment affected the U.S. housing market, too.
Many experts were predicting that the pandemic could lead to a housing crash worse than the great depression. But that’s not going to happen. The market is in much better shape than a decade ago. The housing market is well past the recovery phase and is now booming with higher home sales compared to the pre-pandemic period
