Housing Market Forecast 2021: Will This Boom Continue?

17 Feb 2021 11:34 AM | Anonymous

Housing Market Forecast 2021: Will This Boom Continue?

Housing Market Forecast 2020 - 2021

With 10 years having now passed since the Great Recession, the U.S. has been on the longest period of continued economic expansion on record. The housing market has been along for much of the ride and continues to benefit greatly from the overall health of the economy. However, hot economies eventually cool and with that, hot housing markets move more towards balance.

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.

Before the COVID-19 pandemic, Realtor.com's national housing forecast for 2020 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.

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 fall in GDP associated with the coronavirus pandemic, and the rise in unemployment, was unprecedented. As the number of coronavirus cases grew and lockdowns began taking effect across the United States, real estate activity slowed dramatically. Both buyers and sellers pulled back from the housing market.

According to Zillow, after the third week of March, newly pending sales dropped each week through mid-April, hitting a low of 38.8% below 2019’s figures in a time period when sales usually heat up. Time on the market grew to three days longer than last year in early May, while list price appreciation fell to just 0.1% above 2019.

Year-over-year rent growth in the U.S. saw the biggest one-month slowdown in at least five years. About 3 million adults moved in with their parents or grandparents in April, bringing the number of adults living at home to the highest number on record.

Despite all of that, there were no signs that the housing market is about to subside. The housing market absorbed the shock relatively quickly and began to recover. Pent-up demand that was put on hold was unleashed starting in late April, then supercharged by even lower mortgage rates and changes in housing needs.

Annual growth in median sale prices peaked at 7.4% the second week of April, before plummeting in the early days of the market freeze and falling to 0.8% by late May. But after the freeze began to thaw, year-over-year growth rose sharply and steadily, hitting new highs of 13.8% by late October, according to Zillow's data.

Before the pandemic hit the nation the supply of new housing was failing to keep up with demand. Although buyers were eager to close on houses, sellers were not so anxious to list their houses. Inventory was low compared to 2019 to start the year, and that gap widened nearly every week through early December.

Due to a very tight inventory, coupled with strong demand from first-time buyers, the housing market began to move incredibly fast. Sellers who did choose to list had little trouble finding motivated buyers who were looking to take advantage of low-interest rates. After peaking in early May, time on the market began to fall through early November as available homes for sale were scooped up faster.

According to Zillow, in September 2020, one in five houses sold above list price – about 50% more than long-term norms. Houses’ typical time on the market reached down to 12 days in October — selling at blazing speeds regardless of price. By November, home values had risen 1.1% since October and 3% since the previous quarter — the largest monthly and quarterly gains in Zillow records going back to 1996.

Inventory declined every week starting in early June – by the week ending Dec. 12, it was 34.3% below 2019 levels. As of the week of Dec. 12, houses were typically on the market a median of just 16 days before an offer was accepted — up a handful of days from lows set in earlier weeks, but still a full three weeks (21 days) less than the same time last year.

Zillow expected that 5.7 million existing homes will be sold by the end of 2020, up 5.9% from 2019. This prediction turned out to be true. 2020 was a record-breaking year in residential real estate. But while 2020 will end up being a strong year for the housing market by most measures, it will pale in comparison to 2021.

Zillow predicts that almost 6.9 million existing homes will be sold in the calendar year 2021, the most sales recorded in a single calendar year since 2005 and the largest one-year increase (21.9%) since the early 1980s. According to some experts, 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. 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. 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. Economic sentiment affected the U.S. housing market, too.

Many experts were predicting that the pandemic could lead to a housing crash worse than the great depression. But that's not going to happen. 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.

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 the 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.

The lack of homes for sale means rental demand should recover alongside the economy, and yields will ease back over 2021 and 2022. However, renters hurt financially by the pandemic will continue to struggle, and rental assistance by the government is needed. Now, we won’t speculate too much about the impending wave of foreclosures 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. In 2021, interest rates are expected to remain low but would increase gradually. The home prices will continue to appreciate double-digits.

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.

Housing inventory will remain low, despite plenty of new construction the number of homes for sale would still fall well short of demand in 2021. Buyers will stay focused on the suburbs. We can expect a wave of mortgage refinances to save money.

According to N.A.R, an increasing gap between supply and demand will cause home prices to increase and we can expect further upward pressure on prices for the foreseeable future.

NAR Chief Economist Lawrence Yun continues to project that 2021 will bring about strong economic growth, supported by low mortgage rates and fiscal stimulus, which in turn will bolster existing-home sales. According to Yun, with rates to remain low, existing-homes sales are likely to reach 6.49 million, which would be a 15% increase from 5.64 million in 2020. “There will also be slower home price appreciation, likely 6.6%, as increased confidence from homebuilders will ultimately lead to an increase in housing starts.”

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
Housing Indicator Realtor.com 2021 Forecast
Mortgage Rates Average 3.2% throughout the year, 3.4% by end of year
Existing-Home Median Sales Price Appreciation Up 5.7%
Existing-Home Sales Up 7.0%
Single-Family Home Housing Starts Up 9%
Homeownership Rate 65.9%

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.
housing market forecast 2021Courtesy of Zillow.com

WHICH WERE THE HOTTEST REAL ESTATE MARKETS in 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.

The 2020 Hottest ZIP Codes in America by Realtor.com
Rank Zip Code Zip Name Views Per Property Y/Y Median Days on Market Median Listing Price
1 80911 Colorado Springs, CO 38% 13 $287,000
2 43068 Reynoldsburg, OH 69% 17 $204,000
3 14617 Rochester, NY 44% 18 $162,000
4 2176 Melrose, MA 14% 19 $644,000
5 4106 South Portland, ME 5% 21 $377,000
6 66614 Topeka, KS 99% 19 $184,000
7 3051 Hudson, NH 45% 22 $350,000
8 1602 Worcester, MA 45% 21 $318,000
9 22152 Springfield, VA 41% 7 $553,000
10 27604 Raleigh, NC 81% 25

Economic Recession & 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.

US economic recovery and GDPCourtesy of Bea.gov

The Federal Reserve says it will keep buying bonds to maintain low borrowing rates and support the U.S. economy during a recession. It intends to keep the interest rates at rock bottom for even longer than previously expected after a major policy shift that has profound implications for Wall Street, workers, and savers.

The economy is expected to shrink by 6.5% this year, in line with other forecasts, before expanding 5% in 2021. The Federal Reserve foresees the unemployment rate at 9.3%, near the peak of the last recession, by the end of this year. The rate is now 13.3%. The whole new policy aims to address the immediate economic problems caused by the pandemic-induced downturn.

But knowing that the Fed’s benchmark rate is likely to stay at its current level of near zero for a long time — analysts say that could be several years — might give companies more confidence to invest and hire.

Employers and households also could benefit from cheaper borrowing rates for houses, cars, and other loans. And over the long run, if an extended period of low-interest rates supports economic growth, that could lead to further drops in unemployment, which in turn could help disadvantaged workers who are typically the last to benefit from a long economic expansion.

Over the long term, the U.S. will probably face slower growth, a weaker dollar, and a huge debt related to paying for the crisis response.

What will 2021 be like for buyers? Economic activities are ramping up in all the sectors, mortgage rates trend at historic lows, and jobs are also recovering. Record low mortgage rates are providing opportunities for buyers to lock-in low monthly mortgage payments for future years. The latest housing market trends show that prices are rising in most parts of the country and most price segments because of the lack of supply.

Although growth in supply remains below the normal seasonal pace it continues to improve as buyers anxiously await more sellers to put fresh new homes for sale on the market. Tight housing inventory was the issue for buyers before Covid-19 as well. Due to this persistent shortage of housing, some experts predict that the median home price for the country as a whole could easily rise by 10% cumulatively over the next two years.

If you qualify for a mortgage, you have a more limited selection and prices close to what they were before the coronavirus hit, but you have relatively little competition. In response to the COVID-19 national emergency, borrowers with financial hardship due to the pandemic have been able to receive forbearance, which is a pause or reduction in their monthly mortgage payment. Borrowers can request an additional six months if needed. FHA does not require lump sum repayment at the end of the forbearance.

An important step in this direction was the announcement of the payment deferral option for borrowers. The Federal Housing Finance Agency (FHFA) announced on May 13 that Fannie Mae and Freddie Mac (the Enterprises) are making available a new payment deferral option. The payment deferral option allows borrowers, who can return to making their normal monthly mortgage payment, the ability to repay their missed payments at the time the home is sold, refinanced, or at maturity.

What will 2021 be like for investors? Many investors who primarily acquired at the courthouse foreclosure auction are migrating to buy bank-owned (REO) homes via online auction, which also provides the added benefit of safety from viral exposure. The added competition for these homes due to the moratorium on foreclosures could drive up the prices in the distressed housing market.

According to a survey from Auction.com, 64% of investors who primarily buy investment properties as rentals said they planned to increase or keep their acquisitions, despite the pandemic. Even though the housing market likely won’t be the cause of the next recession, an economic downturn would still have an impact on the US real estate sector.

The spillover to the housing market will rely upon the profundity, length, and severity of the 2020 recession and, if some parts of the country feel the effect worse than others, some local housing markets could see greater effects.

“The current economic expansion is getting long in the tooth by historical standards, and more late-cycle signs are emerging,” said Scott Anderson, chief economist at Bank of the West, who was among those predicting a 2020 recession.

According to a survey published by WSJ, some 59% of private-sector economists surveyed in recent days said the economic expansion that began in mid-2009 was most likely to end in 2020. An additional 22% selected 2021, and smaller camps predicted the next recession would arrive the following year, in 2022 or at some unspecified later date.

To put it simply, the US housing market is ripe for investment in 2021, making it a great time to buy a rental property for sale to increase your cash flow. A multi-generational housing market is creating limited supply and increased competition, driving up prices at the affordable end of the market for the foreseeable future. In hot job markets and communities that fit the youngest generation’s ideals, price increases of 8-15 percent are possible year-over-year.

For everyone else, real estate is appreciating at or just above the rate of inflation. The home price appreciation rate has slowed so far but prices are still rising. While many economists predict that home prices will continue to rise, much will depend on the economy’s ability to bounce back from the pandemic.


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