Real Estate

2021 housing market outlook: No signs of slowing

After a banner year for the housing market in 2020, expect next year to be even stronger

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2020 has been a remarkably strong year for the housing market. Sales volume has remained elevated compared to last year since about mid-June, home values are growing more quickly than they have in 15 years and homes are typically selling a full three weeks faster than a year ago. 

Incredibly, next year’s housing market outlook is poised to be much stronger. 

We are on pace to see 5.66 million homes sold in 2020, a solid 6% growth over 2019. The market should shatter that pace in 2021, potentially hitting 6.9 million homes sold – 21.8% annual growth – in what’s likely to be the strongest year for sales since the Great Recession. And given the expected volume of sales and likely improvement in the economy, year-over-year home value growth reaching 10.3% – the first time in double digits since 2006 – isn’t out of the question.

Driving the bullish housing market outlook is the current strength of the market, which has blown past the usual seasonal slowdown and shown no signs of cooling off this winter, demographic tailwinds, expectations for continued low mortgage rates (though they’ll likely rise from today’s near-record lows) and increased adoption of real estate technology that makes connections between buyers and sellers faster and easier. 

Elevated housing market demand appears to be here to stay

Price gains are being driven by the fundamentals of supply and demand. The bill for years of underbuilding since the Great Recession is coming due as a wave of Millennials entering their mid-30s are in the market for their first home, many of which have likely accelerated their timeline due to the pandemic. These first-time buyers put especially acute demand pressures on the market because they do not have an existing home to turn around and sell, thereby replenishing the supply of available homes. 

Adding to the pile of evidence that heavy housing demand will sustain, Zillow estimates there are 5.7 million “missing” households since the mid-2000s housing crash, partly as a result of the supply of new homes drying up relative to previous decades. These missing households represent people who historically would have moved into their own home but have been unable or unwilling to do so, and should keep housing demand high for many years to come as the market catches up.

Rising mortgage rates unlikely to make a dent

Mortgage rates, which sank to record lows in 2020, are likely to rise as markets anticipate an economic recovery and rebounding inflation. It’s possible a slight rate increase will tilt the financial scales away from homeownership for some would-be buyers, but monthly mortgage payments remain more affordable than renting in much of the country – assuming a down payment is within reach. In other words, don’t expect a few more basis points on 30-year mortgage rates to weigh on buyer demand in a meaningful way.

Technology is improving ease and speed of transactions

The adoption of new and existing technologies during the pandemic has made buying a home not only more convenient, but faster, too. 

Online real estate search platforms allow home shoppers to winnow down their options from home before they hit the road with an agent. Now with advancements like virtual 3D Home tours and self-tour technology, shoppers can be more confident as they narrow their list and can tour homes on their schedule – no more waiting for the weekend before you take a tour. 

These innovations can speed up the process, connecting sellers with interested buyers more quickly and increasing the pace of transactions and keeping inventory from stockpiling to the same degree it has in the past.

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