Housing Forecast in 2021

Housing Market Forecast 2021: Will The Boom Continue?

Before the COVID-19 pandemic, Realtor.com's national housing forecast 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.

Tight inventory coupled with rising mortgage rates would have lead to dropping sales. 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 pace of home sales relative to inventory reached a new record high in February, although hints of deceleration were beginning to surface.

The median existing-home price for all housing types in March was $280,600, up 8.0% from March 2019 ($259,700), as prices increased in every region. The median home price gains marked 97 straight months of year-over-year gains (nationally). In March, the unsold inventory was equal to a 3.4-month supply at the current sales pace, up from three months in February and down from the 3.8-month figure (from a year ago).

The fall in GDP associated with the coronavirus pandemic, and the rise in unemployment, is unprecedented. Despite that, there is little sign so far that the housing market is about to subside. Housing market predictions that take Covid-19 into account have already come out. Before the pandemic hit the nation the supply of new housing was failing to keep up with demand.

Social-distancing requirements are also likely to hold construction back in the coming months. With many sellers remaining on the sideline and a decline in housing starts, inventory will remain constricted. Under normal market conditions, prices would be expected to skyrocket as inventory declines at a faster rate, but buyer demand is expected to see-saw as the fourth wave of coronavirus pandemic pop-ups in winters.

Hence, home price growth will flatten, with a forecasted increase of just 1.1 percent. If the pandemic worsens further in the coming months, the sales are forecasted to take a hit as sellers might again de-list their properties and buyers would also stay away.

Capital Economics is estimating four million homes will be sold in 2020. This would be the lowest rate since 1991. For comparison, roughly 5.3 million homes sold in 2019. The trade war with China threatened international trade, creating a cloud that deferred business investment. Now we’re looking at a certain economic downturn due to the government’s choice to close the vast majority of businesses, nearly killing the service economy.

Experts think that the economic cost we’ve paid to try to contain the virus will weigh down the economy into 2021. That is why home sales are expected to be around six million in 2021 instead of the previously projected 6.3 million. Economic sentiment affected the U.S. housing market, too. The number of homes for sale fell nearly 16 percent in March 2020, after listings fell 15 percent year over year in February. This was equal to roughly 200,000 homes being taken off the market.

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. US housing market predictions for the longer term will depend on the lingering impact of this virus. How long will it take for the economy to return to normal? How quickly will the service economy re-open and get people back to work?

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, especially if you're an investor, 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. While housing demand has been softening nationwide due to the pandemic and job losses, 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. For the first time since the pandemic began, all four major components of real estate activity—the demand, supply, pricing, and sales—are growing above the pre-COVID pace.

However, we may see home sales temper toward the latter part of 2020 and into 2021 if the unemployment rate stays elevated, but slower home sales are different than a busted housing bubble.

Many experts were predicting that the pandemic could lead to a housing crash worse than the great depression. But that's not the case. The good thing, at least for buyers and investors alike, is that house prices have nearly flattened and are poised to remain stable in the latter half of this year.

Let’s first look at one of the most talked-about negative housing forecasts for 2021 — The rising mortgage delinquencies and their impact on the housing market in 2021? MBA forecasts that the refinance boom will surge in March and then drop by 54% by the second quarter of 2021. 

Delinquencies at the end of 2019 were at their lowest level since 1979. That turned around quickly with the pandemic and spike in unemployment. It is important to note that foreclosure activity is increasing despite the various foreclosure moratoria that are in place. Mortgage delinquencies and foreclosures increased in August and October, respectively. 1.2% of loans are at least 150 days past due according to CoreLogic.

ATTOM reported that foreclosures increased by 20% in October. The increased long-term delinquency is due to participation in forbearance programs, and foreclosures are down 80% year-over-year. South Carolina, Nebraska, and Alabama post highest state foreclosure rates

According to RealtyTrac's October 2020 U.S. Foreclosure Market Report, there were a total of 11,673 U.S. properties with foreclosure filings — default notices, scheduled auctions, or bank repossessions — in October 2020, up 20 percent from a month ago but down 79 percent from a year ago. South Carolina, Nebraska, and Alabama post the highest state foreclosure rates.

Big metropolitan statistical areas are having the highest foreclosure rates. Almost all of the metro areas where foreclosure activity increased on a month-over-month basis are also places where unemployment rates are higher than the national average, and in many cases have been hotspots of COVID-19 infections.

According to third-quarter 2020 research released by the Mortgage Bankers Association's Research Institute for Housing America, over 6 million households did not make their rent or mortgage payments and 26 million individuals missed their student loan payment in September 2020.

During the third quarter, the percent of homeowners and renters behind on their payments decreased slightly from the second quarter, but the overall amount remains high. In September, 8.5% of renters (2.82 million households) missed, delayed, or made a reduced payment, while 7.1% (3.37 million homeowners) missed their mortgage payment.

Student debt borrowers rose from 3% at the beginning of April to 8% by the end of September. The millions of student debt borrowers behind on their payments also have future ramifications for the housing markets. In aggregate, rental property owners lost as much as $9.2 billion in third-quarter revenue from missed rent payments.

Why is there a negative housing market forecast for 2021 amidst the ongoing boom? At the moment, the foreclosure moratoriums have kept lenders from being able to even start their processing of defaults. One of the negative housing predictions is that the supply in the form of foreclosed homes may overwhelm the demand by many folds in 2021. The result would be that prices are going to plummet again and the real estate sector will likely cool off.

The major effect will be seen in the summer of 2021 because foreclosure that starts today is probably not going to be processed until mid of 2021. It will be well into 2021 before you will see a spike in single-family and condo foreclosures. First of all the mortgage forbearance must end. Then the backlog of prior foreclosure and eviction cases must be cleared before a wave of new ones can be processed.

This creates an incredible buying opportunity in the local housing markets if you can secure funding or have the cash to start buying once this inventory hits the market. According to Capital Economics, the US rental markets have been getting looser, and we can expect vacancy rates to rise further to 5.5% by the end of 2020.

That will push rental growth down to -1.5% year-over-year over the next couple of quarters. But, beyond that, the lack of homes for sale means rental demand should recover alongside the economy, and yields will ease back over 2021 and 2022.

However, we won’t speculate much about it and would rather focus on the current housing indicators and their recovery from the lows caused by the pandemic.

Real estate activity has been going on at an unusual pace. The housing sales recovery is strong, as buyers are eager to purchase homes and properties that they had been eyeing during the shutdown. This increase in buyer activity can go on for the coming winter season as long as mortgage rates remain low and jobs continue to recover. But more importantly, if the coronavirus cases do not rise at a rapid pace.

However, as demand for home buying remains super strong, we're still likely to end the year with more homes sold overall in 2020 than in 2019. Capital Economics’ recent housing market predictions are that new and existing home sales will fall back over the remainder of the year. After rising to 5.3% y/y in the third quarter, growth will slow to 2.0% y/y by the end of next year.

According to N.A.R,'s recent forecast, for all of 2020, existing-home sales are expected to increase by 1.1% compared to 2019, with sales ramping up to 5.4 million by the fourth quarter. According to their chief economist, Lawrence Yun, they are witnessing a true V-shaped sales recovery as homebuyers continue their strong return to the housing market.

For the year 2021, Yun projects existing-home sales to reach 5.86 million, supported by an economy that he expects to expand by 4% and a low-interest-rate environment, with a 30-year mortgage rate average of 3.2%. New home sales are expected to be higher this year than last, and annual existing-home sales are now projected to be up – even after missing the spring buying season due to the pandemic lockdown.

Realtor.com's latest housing market forecast for 2021 shows that the housing boom will continue but the seasonal trends will normalize. 

• Spring and summer home-buying seasons in 2021 will be strong.
• The existing home sales will increase by 7 percent in the year 2021.
• The rise of millennials will push the housing demand up. 
• Home prices will hit new highs, even though the pace of growth slows.
• There would be no double-digit price gains.
• The home prices will appreciate by 5.7%.
• Single-family housing starts are now predicted to increase by 9 percent.
• Low mortgage rates will keep purchasing power healthy, but monthly mortgage costs will rise as mortgage rates steady and home prices continue to rise.
• Mortgage rates will remain low with an average of 3.2% throughout the year.
• Buyers seeking affordability and space will drive interest in the suburbs.
• The pandemic has merely accelerated this previous trend by giving homebuyers additional reasons to move farther from downtown.
• Sellers will get top dollar for their homes.
• Fast sales will remain the norm in many parts of the country which will be a challenge felt particularly for first-time buyers

According to Zillow, the housing market forecast for 2021 has improved but lingering economic uncertainty may temper some of the predictions.

The forecasts for seasonally adjusted home prices and pending sales are more optimistic than previous forecasts because sales and prices have stayed strong through the summer months amid increasingly short inventory and high demand.

The pandemic also pushed the buying season further back in the year, adding to recent sales. Future sources of economic uncertainty, including lapsed fiscal relief, the long-term fate of policies supporting the rental and mortgage market, and virus-specific factors, were incorporated into this outlook.

• Home sales will remain near their current, elevated levels well into 2021.
• Sales volumes overall are forecasted to remain higher than pre-pandemic levels throughout this year and next.
• Their forecast suggests that closed home sales reached a recent high in September, and will temporarily slow down in the coming months, falling to pre-pandemic levels by January 2021.
• Growth is then expected to resume next spring and to remain firmly above pre-pandemic volume through most of next year.
• This short-term deceleration in sales volume can be attributed in large part to an expected slowdown in GDP growth, the fading impact of historically low mortgage rates, fewer sales occurring that were deferred from earlier this year, and historically low levels of for-sale inventory.
• An expected reacceleration of GDP growth in 2021 should help push sales volumes higher.
• The home price forecast has been adjusted to higher for 2021.
• Seasonally adjusted home prices are expected to increase by 1.2% from August to November and rise 4.8% between August 2020 and August 2021.
• The previous forecast predicted a 3.8% increase in home prices over this time frame.

HOTTEST REAL ESTATE MARKETS IN AMERICA 2020

According to Realtor.com's Market Hotness Index, measuring time-on-the-market data and listing views per property, the east coast accounts for seven of the top 10 zip codes, with a focus in the northeast region. Although these markets were hit by the COVID-19 pandemic first, they were also some of the first to recover, with caseloads easing over time.

The resulting pent up demand has driven homebuyers back to these markets, but now with an increasing preference for neighborhoods outside of the dense city centers and more toward suburban areas. Affordability continues to be a key factor in attracting buyers to these neighborhoods.

The median listing price in the hottest zip codes was $335,000, up 1.8 percent year-over-year. However, these prices were 15 percent cheaper than their surrounding metros, on average, and essentially right in line with the national median price of $331,000 during the same period.

The top 10 zip codes follow the overall trend of homebuyers shifting their buying behavior in response to the pandemic by increasing their search toward less dense suburbs beyond urban city centers.

Before the coronavirus pandemic began, the U.S. housing market was already short from the supply side. Years of slow home-building activity coupled with the ongoing financial crisis point to the fact that the number of homes for sale would still fall well short of demand in the coming months.

Housing market experts predict that sharp declines in the prices look improbable as the buyer demand has remained relatively strong despite the pandemic. A lot of new buyers want to purchase a house and while investors have taken a pause.

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.

As the population of millennials is increasing, the demand side of housing remains strong. Many buyers need to get into a larger home because they have a growing family. Those interested in purchasing homes are looking at the enticing low mortgage rates. According to Freddie Mac, mortgage rates continue to slowly drift downward.

Record-low mortgage rates are likely to remain in place for the rest of the year, and all the Fed’s policymakers foresee no rate hike through 2022. You’ll likely start to see those long-term rates remain low and potentially slip a bit lower in tandem with short-term borrowing costs. That means refinancing could be a smart option for your pocketbook.

A reduction in even just a quarter of a percentage point could potentially shave off a couple of hundred dollars from your monthly payments. This will be the key factor driving housing demand as state economies steadily reopen.

We can expect a wave of mortgage refinances to save money. Fannie Mae predicts 40% more mortgage refinances in 2020 than in 2019. To help borrowers and renters who are at risk of losing their home due to the coronavirus national emergency, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac (the Enterprises) are extending their moratorium on foreclosures and evictions until at least until January 31, 2021—the current moratorium was supposed to expire at the end of December 31, 2020.

That gives potential home sellers hope, though it will take time for these low-interest rates to offset the spike in unemployment and general economic malaise. The foreclosure moratorium applies to Enterprise-backed, single-family mortgages only while the REO eviction moratorium applies to properties that are acquired by Fannie or Freddie through foreclosure or deed-in-lieu of foreclosure transactions.

The moratorium is expected to cost the two government-sponsored enterprises between $1.1 billion and $1.7 billion, and it protects more than 28 million homeowners across the country. This is in addition to the $6 billion in costs already incurred by the Enterprises. FHFA will continue to monitor the effect of coronavirus on the mortgage industry and update its policies as needed.

Current Economic Situation & Its Affect on Housing Market

The pandemic cost 22 million payroll jobs in March and April, and about 9 million have been recovered through July. But more recently, job openings appear to have stalled, and other statistics indicated that the labor market remains in the grips of recession. On August 27, the Labor Department said that the number of Americans applying for jobless benefits topped 1 million last week, just as it has most weeks since late March.

That’s about four times the number of average weekly applicants before the pandemic. And the near-term job prospects are dim for people in service industries such as restaurants, hotels, travel, and entertainment. According to the U.S. Bureau of Labor Statistics, as of July, the U.S. unemployment rate stood at 10.2 percent.

The rate is encouraging when compared to previous months but is still above the highest rate during the Great Recession—10 percent in October 2009. These improvements in the labor market reflected the continued resumption of economic activity that had been curtailed in March and April due to the coronavirus (COVID-19) pandemic.

At the same time, the stimulus package that Congress passed in March was more than double the financial aid offered during the last downturn.

Real gross domestic product (GDP) increased at an annual rate of 33.1 percent in the third quarter of 2020, as efforts continued to reopen businesses and resume activities that were postponed or restricted due to COVID-19, according to the “advance estimate” released by the Bureau of Economic Analysis. This is a massive economic recovery as in the second quarter of 2020, real GDP had decreased by 31.4 percent.

The decline in second-quarter GDP reflected the response to COVID-19, as “stay-at-home” orders issued in March and April were partially lifted in some areas of the country in May and June, and government pandemic assistance payments were distributed to households and businesses. This led to rapid shifts in inactivity, as businesses and schools continued remote work, and consumers and businesses canceled, restricted, or redirected their spending.

The third-quarter increase in real GDP reflected increases in consumer spending, inventory investment, exports, business investment, and housing investment that were partially offset by a decrease in government spending. Imports, a subtraction in the calculation of GDP, increased.

The increase in consumer spending reflected increases in services (led by health care) and goods (led by motor vehicles and parts). The increase in inventory investment reflected an increase in retail trade inventories (led by motor vehicle dealers). The decrease in government spending was in federal as well as state and local governments.

Current-dollar GDP increased 38.0 percent, or $1.64 trillion, in the third quarter to a level of $21.16 trillion. In the second quarter, GDP decreased 32.8 percent, or $2.04 trillion (tables 1 and 3).

The price index for gross domestic purchases increased by 3.4 percent in the third quarter, in contrast to a decrease of 1.4 percent in the second quarter (table 4).

The PCE price index increased 3.7 percent, in contrast to a decrease of 1.6 percent. Excluding food and energy prices, the PCE price index increased by 3.5 percent, in contrast to a decrease of 0.8 percent.

Current-dollar personal income decreased $540.6 billion in the third quarter, in contrast to an increase of $1.45 trillion in the second quarter.

Disposable personal income decreased $636.7 billion, or 13.2 percent, in the third quarter, in contrast to an increase of $1.60 trillion, or 44.3 percent, in the second quarter.

Real disposable personal income decreased by 16.3 percent, in contrast to an increase of 46.6 percent.

Personal saving was $2.78 trillion in the third quarter, compared with $4.71 trillion in the second quarter.

The personal saving rate — Personal saving as a percentage of disposable personal income — was 15.8 percent in the third quarter, compared with 25.7 percent in the second quarter.

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