Even with historically low levels of inventory, rising mortgage rates and uneven job growth, experts still believe 2021 will be a record year for home sales.
How much will be spent on homes? Officials are predicting sale numbers to easily eclipse $1 trillion by years end.
Redfin projected $2.53 trillion in home sales this year, a 17% increase year over year — the largest annual percentage increase since 2013, and a number that, if reached, would be a record high.
While home prices could grow more slowly if mortgage rates rise, that would result in a more balanced housing market — which could actually lead to more home sales, said Redfin Chief Economist Daryl Fairweather.
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“We expect 2021 to be an even more active year for the housing market than 2020 because homebuyers have a better sense of what the future looks like,” said Fairweather. “Employers are providing clarity on permanent remote-work policies, the economy is recovering and mortgage rates remain low. All of these factors mean that we’ll likely see even more buyers enter the market this year and in 2022.”
And all roads lead south.
The South is expected to lead the way with a forecasted $1.09 trillion in home sales, followed by the West with $696.3 billion, the Midwest with $422.6 billion and the Northeast with $322.8 billion. The South’s generous forecast is due to the number of people who have moved and will move during the year to cities with lower home costs and larger lots, Fairweather said.
“A lot of wealth from the coasts is shifting South,” said Fairweather. “Affluent homebuyers from New York and San Francisco have moved to places like Florida and Texas during the pandemic, which has fueled home sales and driven up prices in those areas.”
Freddie Mac and the Mortgage Bankers Association both expect purchase mortgage originations to be north of $1 trillion as well, with Freddie Mac forecasting $1.7 trillion and MBA expecting $1.67 trillion. Freddie Mac and MBA also predict overall mortgage origination levels to reach $3.5 trillion and $3.28 trillion, respectively.
“As the economy continues to improve, we expect conditions to remain generally favorable for the housing and mortgage market,” said Sam Khater, Freddie Mac’s chief economist. “Higher mortgage rates have the potential, however, to dampen the robust demand we’ve been experiencing. Other important obstacles to consider include high home prices and low housing supply that will certainly influence the trajectory of purchase activity specifically.”
Although rates are favorable right now — recently, they were reported at 2.96% — MBA expects the 30-year fixed rate mortgage to end the year at 3.7%. MBA Chief Economist Mike Fratantoni said he expects economic growth to jump to 6.5% this year, a “vast improvement” from 2020’s 2.4%.
“The economy will continue to recover, with rapid job growth, particularly in the hardest-hit, service sectors of the economy,” Fratantoni said. “The job growth is certainly positive, but this environment sets the stage for higher mortgage rates and faster inflation. However, if housing inventory levels improve and help to keep affordability in check, home sales should remain strong into 2022.”
Doug Duncan, Fannie Mae’s chief economist, said the continued distribution of COVID-19 vaccines could encourage even more people to enter an already competitive housing market to take advantage of low mortgage rates while they still can.
“Consumers appear to be increasingly looking toward post-pandemic life,” Duncan said. “While inflationary pressure is growing, our latest forecast update suggests that in the near term interest rates will remain steady at borrower-friendly levels.”