Real Estate Market

The housing market has been on fire in 2020 with record-low mortgage rates and a sudden wave of relocations made possible by remote work. Meanwhile, home prices have pushed new boundaries as buyer demand continues to surge. As we near the end of 2020, here’s a look at the expectations of real estate experts for 2021.
We expect sales to grow 7 percent and prices to rise another 5.7 percent on top of 2020’s already high levels. While we expect mortgage rates to tick up gradually, sales and price growth will be propelled by still strong demand, a recovering economy, and still low mortgage rates. High buyer demand and still-lagging supply will keep prices growing, but at a slower pace than 2020 as buyers contend with mortgage rate and price increases that create affordability challenges. 
While younger Millennial and Gen-Z buyers are expected to play a growing role in the housing market, fast-rising prices will create a bigger barrier to entry for the many first-time buyers in these generations who don’t have existing home equity to tap for down payment savings. Although supply is expected to lag, we do expect the declines to slow and potentially stop by the end of the year as sellers grow more comfortable with the market environment and new construction picks up. Single-family housing starts are expected to grow another 9 percent in 2021. On the whole, the market will remain seller-friendly, but buyers will still have relatively low mortgage rates and an eventually improving selection of homes for sale.
With home builder confidence near record highs, we expect continued gains for single-family construction, albeit at a lower growth rate than in 2019. Some slowing of new home sales growth will occur due to the fact that a growing share of sales has come from homes that have not started construction. Nonetheless, buyer traffic will remain strong given favorable demographics, a shifting geography of housing demand to lower-density markets and historically low interest rates.
But supply-side headwinds will persist. Residential construction continues to face limiting factors, including higher costs and longer delivery times for building materials, an ongoing labor skills shortage, and concerns over regulatory cost burdens. For apartment construction, we will see some weakness for multifamily rental development particularly in high-density markets, while remodeling demand should remain strong and expand further.
Homeowners and the housing industry at-large will utilize technology even more next year to engage buyers and execute deals. 2020 changed the game in everything from touring properties to looking for and locking rates, and participating in secure eClosings.
 
 
 

Real Estate Mortgage Market

We expect homeowners looking to refinance will do so sooner rather than later to take advantage of the low interest rate environment. While the Fed has indicated it doesn’t plan to hike rates soon, uncertainty over what the new administration might do in addition to broad availability of a Covid-19 vaccine, on top of what we hope is an improving economy, could bring an end to the ultra-low rates that we’ve seen this year. We will continue to see the growth of Millennial home buying regardless of the rate backdrop. 
We’re exiting 2020 with a number of dynamics that will more than likely keep this crazy housing market going. There is incredibly low inventory, with less than 500,000 homes for sale, mortgage rates are at 50-year lows, and there’s no sign yet of distressed sellers from the recession coming out. These supply and demand factors will push prices even higher in the first half of the year. Inventory and pricing should ease a bit in the second half of the year, and larger economic headwinds could start showing up. Until then, buyers should be cautious and sellers jubilant.

Home sales rise slightly in January,
but record low supply weighs on market

After a brief pullback in December, homebuyers returned to the market, although they are still being hampered by record low supply. Closed sales of existing homes in January increased 0.6% compared with December, according to the National Association of Realtors. There were 1.04 million homes for sale at the end of January, a 26% drop from a year ago.

Sales ended the month at a seasonally adjusted, annualized rate of 6.69 million units, which was 23.7% higher compared with January 2020. That is the second-highest sales pace since April 2006.

“Home sales are continuing to play a part in propping up the economy,” said Lawrence Yun, chief economist for the NAR. “With additional stimulus likely to pass and several vaccines now available, the housing outlook looks solid for this year.”

There were 1.04 million homes for sale at the end of January, a 26% drop from a year ago. At the current sales pace, there is now a 1.9-month supply, the lowest since the Realtors began tracking this metric in 1982. One year ago there was more than a 3-month supply.

The lack of supply in the face of strong demand continues to push prices higher and higher. The median price of an existing home sold in January was $303,900, a 14.1% increase from January 2020. That is the highest January price that the Realtors have ever recorded.

“We need to build more homes,” said Yun. “Even though housing starts show a decline, it is interesting that the housing permits, the desire to build homes, remains at the highest in over a decade.”

Activity was slowest on the very low end of the market, with sales of homes priced below $100,000 down 28% year over year, and sales of million-dollar homes up 77%.

Days on the market continue to be very swift, with homes selling on average in 21 days. Last January, homes sold in an average in 43 days.

Mortgage rates sat near record lows in December, when most of the contracts on these sales would have been signed. That gave buyers additional purchasing power, especially given sky-high home prices. In the past week, however, mortgage rates have moved sharply higher.

“Looking ahead, we expect demand to remain strong thanks to a large and still growing cohort of buyers reaching prime buying age, but rising prices and mortgage rates–which jumped this week–could dampen buyer enthusiasm as monthly costs go up,” said Danielle Hale, chief economist at realtor.com.

Sales of newly built homes, which are measured by signed contracts not closings, were up 15% year over year in November, which was the latest reading. New homebuilders are benefiting from the severe shortage of existing homes for sale, but they are having trouble keeping up with demand due to a recent spike in lumber prices. They are also seeing shortages of finished lots and skilled labor.