As a year of tight supply and quickly increasing home prices comes to an end, realtor.com’s economists believe that the housing inventory shortage won’t be as dire in the 2021 housing market. However, it all depends on the course the COVID-19 pandemic takes.
Additional lockdowns and quarantines due to COVID-19 could put a dent in housing inventory and sales, potentially slowing down the market and putting increased pressure on buyers, the forecast said. But if a vaccine is rolled out quickly, it could lead to “better than expected sales” and an increase in home prices and inventory.
“The 2021 housing market will be much more ‘normal’ than the wild swings we saw in 2020,” said realtor.com’s Chief Economist Danielle Hale. “Buyers may finally have a better selection of homes to choose from later in the year, but will face a renewed challenge of affordability as prices stay high and mortgage rates rise.”
There was an increase of homeowners moving to the suburbs and rural areas this year as remote work became more common. The forecast said that unless remote work continues, and depending on if and when a vaccine comes, the demand for those homes could cool off. But, if more companies commit to long-term remote work, demand will continue to rise in rural and suburban markets.
However, realtor.com forecasts that 2021 will continue to be a robust seller’s market. Home prices are expected to hit new highs while inventory makes a “slow but steady comeback.” Mortgage rates are forecasted to increase in 2021 – hovering near 3%, then slowly rising to 3.4% by the end of the year.
There will also be more relief in inventory for homebuyers. More homes are expected hit the market. Plus, construction starts are projected to increase 9% over 2020. However, even if new construction jumps at a 9% clip, it’s not enough to sap the continual rise in home prices. Home prices won’t increase as quickly as they have this year, but will continue to reach new highs in 2021 at an expected increase of 7%.
In 2021, Millennials will continue to drive the market and Gen-Z will make its entrance.
“With less cash and no home equity, millennial and Gen Z first-time buyers will be impacted the most by rising home prices and interest rates,” Hale said. “While waiting until the fall or winter months of 2021 may mean more home options to choose from, buyers who can find a home to buy earlier in the year will likely see lower prices and mortgage rates.”
There still stands a possibility of a double-dip recession in the New Year. The realtor.com forecast says that although the U.S. continues to make a K-shaped recovery, the inequality gap is widening.
“In the short term, this could lead to less consumer spending which could more broadly impact businesses and economic growth,” the report said. “In the long term, this could impact the U.S. housing market as “would-be” buyers disappear from the market, cooling demand and driving down home prices.”