It's an understatement to say that the course of the previous year has been unprecedented. The world is still in the midst of a major pandemic, but the housing market has remained strong and real estate continues to be a pillar in supporting the economic bounce-back. Taking a look back to one year ago, the real estate market looked bleak as the U.S. entered into shelter-in-place orders.
Low interest rates helped drive housing sales over the past year, even dipping to record lows within recent months. Buyers dealing with ultra-low inventory have driven sale prices upward drastically. The combination of these factors add up to a seller's market with high sales prices. Thus far in 2021, the housing market continues to be very competitive for buyers who are seeing record high sales prices and homes that are simply flying off the market quickly. With the imbalance of supply and demand, the upward trend of sales prices is expected to continue. This will only soften if the demand lessens or supply increases.
With the typical busy seasons of spring and summer practically here, what are the predictions for the rest of 2021? Interest rates have increased slightly recently and are expected to continue to climb for the rest of the year, depending on the strength of economic activity. Michael Fratantoni, chief economist at the Mortgage Bankers Association, speculates that if rates increase as expected, the refinance boom of 2020 will slow as rates will discourage refinancing, but will remain attractive for homebuyers. Rates have hovered around 3% and are expected to rise toward 3.6% by the end of 2021.
Buying has become more cost-effective than renting in certain locations, according to a recent study by Realtor.com. This is great news for those looking to become homeowners in the near future—especially to millennials, who now make up the largest portion of homebuyers in the U.S., based on a 2020 survey by the National Association of Realtors. These younger buyers are mostly buying their first homes, and Bloomberg says they're not only buying "starter homes," but that these first homes are multi-million dollar homes compared to more traditional humble first homes.
Currently because of extremely low inventory, sellers are basically able to dictate make-me-move pricing, but there's reason to believe that there may be a change on the horizon. This will come as a result of mortgage rates increasing slightly and more inventory coming to market. During the second half of this year, expect to see an increase in mortgage interest rates and inventory with more spring-summer listings coming to market, which is expected to increase as seller apprehension is eased. New construction inventory will also assist in slowing down the rapid appreciation we've become accustomed to. Hopefully homes will be forced to compete with other homes, in turn being on the market longer than a day or two and slowing down escalating sales prices.