Here are the latest housing market predictions for 2021 & 2022.
The global pandemic shattered the world order and the US economy suffered its biggest blow since the Great Depression in the second quarter. It has been roughly one year when it put the housing market on hold for several months last spring. Even with rising mortgage rates and higher prices, economists say the housing market should remain strong due to very tight inventories and increasing demand as more millennials are projected to buy houses this year.
Now millennials make up the largest share of homebuyers in the US, according to a 2020 survey from the NAR. According to a new study by Realtor.com, buying is more cost-efficient than renting in a growing number of the largest cities in the country. This is encouraging news for the millions of millennials who are approaching peak homebuying age.
In 2021, so far, the housing market continues to be competitive for buyers resulting in higher home prices and quick-selling homes. In March 2021, the median home listing price reached an all-time high of $370,000, up 15.6% compared to last year. The large metros saw an average price gain of 12.1% compared to last year.
Houses for sale moved off the market six days less than the same time last year and the housing supply (for sale listings) have declined by 52.0% over last year, a higher rate of decline compared to the 48.6% drop in February. With the increasing prices, the monthly mortgage payments have also increased by almost $100. The monthly payment for an 80% loan for the typical listing hit $1,260 in March 2021, matching the previous peaks in both fall 2018 and spring 2019, according to Realtor.com.
With the continued supply-demand imbalance, this upward pull on prices is expected to remain consistent in 2021. This pace of appreciation can decline only if either supply ramps up or demand softens. There are reasons to believe a change in the trend’s intensity is on the horizon as more inventory is expected to become available later this spring. Homes will sit on the market longer, markets will accumulate more active listings.
More listings in spring-summer buying season and higher mortgage rates, both of which can slow down the pace of home price appreciation. In the second half of this year we will see higher mortgage rates and, as they continue ticking up, which may begin to create a ceiling on the median home price growth, as monthly payments on new mortgages become less and less affordable.
Home building will continue and new homes will pile up a bit which will slow down the rate of price appreciation. Existing home sales dropped to a six-month low in February 2021 (lowest level since September 2020) to an annual rate of 6.22 million, a drop of 6.6% from January, according to the National Association of Realtors.
On a year-over-year basis, sales were 9.1% higher than a year ago. Even with the decrease, sales were 9.1% higher than a year ago and prices were 15.8% higher. NAR’s report shows that despite the drop in home sales housing market continues strong even as mortgage rates tick up to the highest levels this year amid rising long-term bond yields. The 30-year fixed-rate average rose to 3.09% last week, according to Freddie Mac.
The housing market has been struggling to keep up with the demand for the past decade. The pandemic has led to a surge in demand. The median sales price of a home has risen 16% from last year and they have increased even more in some regions of the country like the Northeast and West, which are both up 21% from last year. The inventory of homes for sale declined by about 30% annually in February 2021, a record drop.
There are reasons to believe that the housing market will remain tight in 2021 because there are first-time buyers (Millennials) coming into the market. About 4.8 million millennials are turning 30 this year, and will continue to do so for the next three years, a significant positive force for the economy and housing. The main challenge for markets is meeting this upsurge in demand with a declining supply.
A recent Zillow survey shows that millions will enter the housing market in 2021 to purchase their dream house. In their survey, more than 1 in 10 Americans (10%) said they moved in the past 12 months, either by choice or circumstance. And now, with the COVID-19 vaccine circulating and the economy slowly picking up steam, Zillow researchers say millions more households could be potential home buyers in 2021.
In fact, we have seen a huge influx of movers wanting to take advantage of larger houses and larger plots for a fraction of the price they would pay in the metro area. Specifically housing markets such as Portland, Maine, Bay City, Michigan, Pueblo, Colo. And many zip codes in Idaho have become popular destinations for moving since the beginning of COVID-19.
In contrast, data from Zillow showed that housing inventory climbed the highest in four major real estate markets – Los Angeles, Chicago, San Francisco and New York. “More affordable and medium-sized subway areas across the Sun Belt have seen significantly more people coming than going – especially from more expensive, larger cities to the north and coast,” said Jeff Tucker, chief economist at Zillow.
New home sales also decreased by 18.2% in February to a seasonally adjusted 775,000 while prices rose, according to estimates released by the U.S. Census Bureau and the Department of Housing and Urban Development. The figure was still 8.2% higher than the estimate for February 2020. January’s sales number was revised upward to 948,000 from the earlier estimate of 923,000.
New construction of single-family homes is expected to grow this year. The median price ($349,400) is 5.3% over median price posted a year earlier. Even though new home prices are rising due to increase in lumber prices, the lack of existing homes for sale means new construction is the only option for some prospective home buyers.
The housing market has seen buyers hyperactive in 2021, driving up home prices by double-digits and causing homes to sell quickly in competitive market conditions. Currently, there is an extremely tight supply of homes on the market, the lowest on record since the turn of the century. Further home price gains are expected until either supply ramps up or demand eases.
However, realtors believe that the vaccine roll-out is expected to ease seller apprehensions, which should improve the supply trends throughout the year. Additionally, an improving economy is maintaining upward pressure on mortgage rates over the last couple of months. In February 2021, the unemployment rate was little changed at 6.2 percent, much lower than their April 2020 highs, according to the U.S. Bureau of Labor Statistics.
Working from home has driven up demand for more space but the survey also indicates the number of people working from home has been dwindling each month. In February, 22.7 percent of employed persons teleworked because of the coronavirus pandemic, down from 23.2 percent in January. These factors will have an impact on housing sales and rents in the coming months. As of now, the rent growth remains lower than pre-COVID rates, but the overall downward trend is leveling off.
Interest rates ticked up again this week, continuing their steady trend upward that has played out for most of 2021. The FHFA announced that it will limit its purchases of loans secured by second homes or investment properties to just 7% of its portfolio. Therefore, mortgaging second homes or investment properties likely to get more expensive in 2021.
Generally, mortgage rates are higher by about 0.5% to 0.75% for second homes and investment properties than for the home you live in. If mortgage rates increase in the coming months, it will affect the affordability and will challenge buyer demand in the months ahead.
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Realtor.com’s market data for the week ending April 3, 2021, shows that the median home price of all the listings increased by 17.2% over last year, notching the 33rd consecutive week of double-digit price growth. In February of last year, before the outbreak of the pandemic, home prices were rising at the rate of 3.9% year-over-year. Clearly, today’s rate appreciation is almost three and half times more than that.
Here’s how the national housing market has been trending for the past couple of weeks and its comparison with the time when the shutdowns were imposed in the country.
- Homes are selling quickly as buyers try to capitalize on low mortgage rates before they rise back to last year’s levels.
- Time on market was 9 days faster than last year.
- The total number available for sale at any point in time continues to drop lower and lower, dropping 53 percent since last week.
- New listings were up 6.3 percent compared to this time last year.
- Relative to 2017 to 2019’s data, March 2021 was still roughly 117,000 new listings lower.
- More new listings are expected in March and April of 2021 as they traditionally do heading into spring.
- After sizzling winters, the housing demand rebound is much faster than the supply recovery.
- To deal with limited existing homes available for sale, homebuyers are turning to new construction homes, helping to fuel continued increases in new home sales so far this year.
- New construction, which has risen at a year-over-year pace of 20% or more for the last few months, will provide some additional relief with regards to short supply.
- With buyers active in the market because of the uptick in mortgage rates, homes are moving quickly.
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