When the Covid-19 pandemic hit, the United States economy suffered one of its biggest blows since the Great Depression, plunging the country into a recession that left millions of Americans out of a livelihood. A surprising bright spot in these bleak times was the housing market. Despite all expectations to the contrary, the housing market experienced an unexpected boom, with prices rising significantly and reaching record highs, mortgage interest rates fell to levels never seen before, and more homebuyers seeking to buy new homes. In short, the housing market provided the desperate economy with a much-needed boost during these bleak times. However, the questions on most people’s minds are, “How long is this boom going to last?” and “What’s next for the red-hot market?” So, let’s take a deeper look at how the market is doing and what the forecast is for 2021.
Prices Continue to Rise Steadily
According to S&P Core Logic Case-Shiller Indices, house prices in the US rose by about 9.5% in the last year. This trend does not seem likely to stop in the near term. Market watchers and economists strongly believe that this trend will continue into 2021.
The surge in house prices can largely be attributed to the current increase in demand for houses. More people, millennials especially, are opening up to the idea of buying their own homes. Economists believe that this new demand is also fueled by the low mortgage interest rates that now prevail in the housing market. While mortgage rates have been steadily falling for some time, they fell by dramatic levels during 2020 and the trend continued in the first months of 2021, with rates hitting a record low of 2.65% in January 2021. As a result, buyers have been scrambling to take advantage of these low rates. This combined with buyers’ FOMO (fear of missing out) has led to a large rise in demand for houses. This new rise in demand is happening at a time when the number of houses listed for sale is at a historic low. Homeowners are not anxious to sell their houses during a pandemic.
Thus, according to this narrative, a surge in demand and a lack of supply is leading to the record high prices we keep seeing in the housing market. Furthermore, while some homeowners are reluctant to sell, the houses that are being sold are going at a much faster rate than previously. By September last year, a normal home sold in only 16 days, compared with 28 days a year earlier. Thus, homebuyers have to work harder to snag the home of their dreams: they may have to offer more than the asking price to be in with a better chance of buying the home, which overall contributes to the increase of house prices. Taking all of this into account, a study by Zillow predicts that the value of a home may rise by as much as 13.5% by mid-2021.
Not Enough Homes Listed for Sale
Homes listed for sale last year were down by 22% on 2019. While the shortage of homes for sale is not a new problem, the pandemic seems to have made the issue worse.
As the country’s economy began taking a huge hit from the impact of the pandemic, most people were wary of making a huge change during such unpredictable times. This resulted in a number of people who originally had considered putting their house on the market being more reluctant to do so. Some sellers even pulled their house off the market.
Furthermore, as the virus spread further, people were more cautious about showing their homes to prospective buyers. The last thing anyone would want when there is a deadly virus going around is people roaming in their homes. While technology innovations like virtual tours offered a solution, still sellers became scarcer. This, coupled with the numerous increased construction costs that builders faced in 2020, including increased lumber prices, lack of skilled laborers, and construction shutdowns because of COVID-19, led to a decrease in the number of housing units available for buyers.
Of course, this may change in 2021. With more motivated buyers around, there could well be a construction boom this year. Also, being cooped up in their homes because of lockdowns has made many Americans interested in having more space. This is encouraging more builders to get in the game. According to the National Association of Home Builders (NAHB), new construction on single-family homes could exceed 1 million in 2021. Market watchers predict a construction boom in 2021, as more builders gear themselves up to meet the increased demand for homes.
Is the Housing Market Going to Crash in 2021?
This is the question plaguing homeowners and buyers all over the country. With the unexpected boom in the housing market in 2020, many people are expecting a bust in 2021.
However, based on our survey of expert opinion, there seem to be a consensus that there is no sign of the housing market crashing. In fact, experts forecast the housing market will continue going strong for the foreseeable future, with more buyers getting into the market chasing a continuing shortage of homes. So we can be pretty confident that house prices will go on rising through 2021 at least.
Campisi, N. (2021, January 4). The U.S. faces a housing shortage. Will 2021 be a turning point? https://www.forbes.com/advisor/mortgages/new-home-construction-forecast/
Demsas, J. (2021, February 5). Why the housing market is booming in the Covid-19 pandemic. Vox. https://www.vox.com/22264268/covid-19-housing-insecurity-housing-prices-mortgage-rates-pandemic-zoning-supply-demand
Santarelli, M. (2021, February 26). Housing market predictions 2021: Is it going to crash or boom? Norada Real Estate Investments. https://www.noradarealestate.com/blog/housing-market-predictions/
Solutions, R. (2021, March 1). Housing market forecast 2021: How hot will it be? Daveramsey.com. https://www.daveramsey.com/blog/housing-market-forecast
Trapasso, C. (2020, October 24). Why are home prices rising so high? Blame record-low mortgage rates. MarketWatch. https://www.marketwatch.com/story/why-are-home-prices-rising-so-high-blame-record-low-mortgage-rates-11603207225