2020 was a year like no other. The housing market took a plunge in the face of the pandemic in the spring, but unlike the rest of the economy, it rebounded quickly and remains poised to lead the nation into recovery as we move into the new year.
Homeownership is at its highest level in 12 years, buoyed by millennials moving into prime homebuying years. Mortgage rates are at record lows and supply is tight. Let’s take a close look at the most recent data as we bid 2020 a not-so-fond farewell and move forward into 2021.
2020: A Year in Review
While existing home sales dipped in November, they are still up nearly 26% versus last year. “Sales for all of 2020 are already on pace to surpass last year’s levels,” according to National Association of Realtors® (NAR) chief economist Lawrence Yun. “Given the COVID-19 pandemic, it’s amazing that the housing sector is outperforming expectations,” Yun continued.
Pending home sales experienced a similar dip, but contract signings continue to be up strongly versus last year (+16.4%) with the forward-looking pending home sales index hitting an all-time high for November (125.7), according to the NAR.
The median home price continues to blow away 2019 levels, now at $310,800, for the 105th straight month of year-over-year gains.
Constrained supply and insatiable demand have driven prices in 2020. The latest data shows unsold inventory at an all-time low of 2.3 months. Combine this with rock-bottom mortgage rates in 2020 (2.86% for 30-year fixed-rate as of this report from the Mortgage Bankers Association) and that means a fast market. Nearly three-quarters of homes sold in November were on the market for less than a month. Mortgage applications illustrate the pace of activity, up 26% versus 2019.
Homebuilding also bounced back after a sharp drop this spring: March to April was the largest one-month drop since 1984. November data shows housing starts up versus the previous month (+1.2%) and year ago (+12.8%) to 1.54 million units.
The inventory squeeze also resulted in fewer home flips across the country. That said, profits were up in 2020—to a tune of more than 44% ROI (vs. 40% year ago) and a typical return of $73,766.
2021 Predictions: The Experts Weigh In
Economic and housing experts predict a continued housing rebound this year with homeownership rising to its highest rate since 2005. More than 20 top U.S. economic and housing experts aligned in the following forecast showing low mortgage rates and firm prices, among other factors.
Redfin chief economist Daryl Fairweather predicts a post-pandemic boom with new buyers and sellers entering the market: specifically, more home sales and more new homes built than in any year since 2006. “Annual sales growth will increase from 5% in 2020 to over 10% in 2021,” Fairweather reports.
Inventory may also open up as older sellers with greater health risks, who may have postponed listing their home during the pandemic, will now be ready to sell. Industry leaders anticipate that home prices will continue to rise, but at a more modest pace.
And the selling season will likely extend into the third quarter again in 2021, according to ATTOM Data Solutions. The vaccine rollout and more stable housing supply should keep the market strong into the latter part of next year, notes chief product and technology officer Todd Teta.
On the flip side, flipping may face more limited buying opportunities as distressed supply continues to be limited, likely not improving until later in the year. “We expect to see record prices on flips along with margin, even with lower volumes,” Teta reports.
Experts also agree that relocation will set records as remote work becomes the norm. More than 30% of homebuyers will consider leaving their current metro. Smaller southern cities will heat up in 2021 as nearby major markets have become out of reach. San Antonio, Tuscon and Tampa take down Austin, Phoenix and Miami with more bang for the buck.
And first-time millennial and Gen Z buyers will continue to fuel household growth. “Because of these two cohorts, the total number of households are forecast to rise an average of 1.3 million per year in the next couple of years, or about 1% growth in net households per year,” according to CoreLogic chief economist Frank Nothaft.
These digital natives will continue to rely on technology to help them in their home search. Video tours are now the norm for many buyers. Consider this data point: 3D walkthroughs increased 560% on Redfin since February. “Virtual home tour technology coupled with increasing migration will cause more than half of homebuyers to make offers sight-unseen during their search for a home in 2021,” notes Fairweather.
Ready for the Future?
2021 is shaping up to be another dynamic year for real estate investors. It’s more important than ever to have a professional in your corner who understands the changing nature of the real estate market and can help uncover the right opportunity, at the right time, for your investment strategy.
Our agents are constantly finding value-rich deals for our investors. Let us help you discover the one that fits your strategy. Contact us to see if you qualify for access to our exclusive inventory.