The year 2020 has been anything but usual and the housing market is no exception. The housing market has been fueled by 50-year low interest rates and a tsunami of relocations driven by a significant increase in remote workers. Combine this with the growing desire/need for more space and the result is a housing market on fire. As Lawrence Yun, chief economist for the National Association of Realtors, said, "When the pandemic began, there was a tremendous amount of uncertainty. To our surprise, the housing market not only recovered, and then some, but it went roaring past the pre-pandemic levels."
So, what is in store for 2021? Is this tremendous housing market going to be doused with flame retardant and result in smoke and ashes? The vast majority of experts and economists agree that 2021's housing market will prove to be even stronger than 2020.
In the last year mortgage rates have hit record lows and the Federal Reserve has indicated that rates will remain favorable through 2021. Len Kiefer, deputy chief economist with Freddie Mac, thinks that mortgage rates "will continue to remain relatively flat for the next year." He believes "they might bounce around a little bit" and rates may be "modestly higher at the end of next year, but pretty flat over the next year." This of course is all dependent on the broader economy and what happens with the pandemic. If we see success with the vaccination process, the economy could open and see quicker recovery; at which point we may see rates begin to rise. The general consensus among economists seems to be that even if a rapid economic recovery takes place in 2021, rates will still remain in the 3% range and it is unlikely that we will see rates rise above 4% in 2021.
Home-price appreciation is expected to continue its fastest pace growth since the Great Recession, as the scarcity of inventory continues to create competition with buyers. Until the anxiety and uncertainty of the virus are quelled with sellers currently sitting on the sideline, inventory will remain inadequate for market demand. Many feel that the inventory crunch will remain strong through at least midyear, as the COVID vaccine becomes widely available, schools and local economies begin to open up and the buyers who have been waiting will step into the market.
Another driving force will be the millennials who are entering the market as first-time homebuyers. It is thought that millennials will continue to capitalize on the low interest rates and again drive demand where inventory is tight. Following the generational conversation is Generation Z. It is expected that the demand for investment property will continue to rise, as Generation Z is continuing to graduate from college. This new pool of tenants will be entering the workforce as the economy begins to open and are sure to want to experience living in their own environments, thus, creating increased demand in rental housing and increased investor demand for residential rental property.
By all accounts, the general consensus among economists and analysts is the 2021 real estate housing market will remain strong and demonstrate even more growth than the surprise growth of 2020.