Indicators that the Real Estate Market is Strong in 2021

Published: Apr 19, 2021

As reported by various real estate experts, the first week of November saw the 13th consecutive week of double-digit price appreciation year-over-year (YOY). 

This seller's real estate market is driven by:

  1. High demand
  2. Low inventory
  3. Low mortgage rates

And while some new listings may have entered the market, supply continues to drop going into winter and the new year.

The holiday season is often marked by decreased demand and an increase in time spent on the market simply because people are busy. When coupled with the ongoing pandemic, a drop in demand wouldn’t be a surprise.

Strong demand equals an encouraging real estate market

However, given that the market both recovered after the pandemic began and the buying process has since been able to adapt to the needs of the pandemic, there may be a slight boost as people who intended to buy during the lockdown try to seize this opportunity to move. And if demand remains high while supply continues to fall, 2021 will likely see the rental market start strong thanks to an overactive winter.

Where would 2021 go from there? 

Let’s see what the experts think!

Real Estate Competition

High demand, low inventory, and record low-interest rates set the stage for competition, which can drive prices up. 

With cost increasing, buyers may hope to close quickly before they’re priced out. This would further eat into supply and drive prices even higher. The fear of the pandemic getting worse, and the possibility of a vaccine on the horizon may also motivate people to act quickly.

The amount of expected price growth, however, is modest. As reported by the Motley Fool, Freddie Mac and the Mortgage Bankers Association predict an increase of 2% in the first half of 2021. CoreLogic, meanwhile, expects a scant growth of .2% by September 2021. 

Home Foreclosures and Savings

At this time, moratoriums on foreclosures have prevented banks from getting the default process rolling. So, it may be as late as the summer of 2021 that the impact of those foreclosures is felt in terms of an increase in supply. In that case, the opportunities in distressed properties will be far greater than they are now. 

Simultaneously, many people spent the pandemic saving money rather than spending it, as shown in the graph below. This could keep the seller’s market healthy if supply gets a boost from foreclosures, finished construction projects, and people deciding it’s safe to sell their homes.

Increase supply strong real estate market 2021

From Dense to Less Dense

Similar to California real estate market predictions for 2021, it’s predicted that many people nationwide will move from cities to less dense suburbs. Several factors will drive this change:

  • People want more affordable housing.
  • People are wanting to start a family or making more space for growing families.
  • People require greater accommodations given that more time is being spent at home due to remote working and the ongoing pandemic. 
  • People are gaining a greater appreciation for their homes and, as a result, wanting to find their dream house.

Kiplinger’s reported that rather than kickstarting this trend, the pandemic added fuel to a fire that had already been burning.

The Impact of the Construction Slow Down

It’s one thing to say that there’s a construction slowdown, but it’s another thing to see it represented in a graph. 
According to Zillow, new listings are down by 7.4% YOY, and inventory is 37.4% lower than this time last year. 

Weekly market report real estate industry

According to Zillow, new listings are down by 7.4% YOY, and inventory is 37.4% lower than this time last year.

By summer, however, we should see the completion of new construction projects. The Motley Fool reports that construction was up 14% in October relative to the rest of the year, and Fannie Mae projects a 17.1% increase in the construction of new single-family homes starting in early 2021. While this might not bring the market back to pre-pandemic supply levels, it will undoubtedly provide ample opportunities for home buyers.

You Don’t Always Get the Recovery You Want

The availability, distribution, and success of coronavirus vaccines will play a large part in determining when more people finally decide to buy and sell homes. It will also influence when construction and supply chains can start their journey back to pre-pandemic levels in earnest. Yet, how the pandemic is managed will also determine the nature of the US’s recovery. 

While a V, U, or W shaped recovery sees the population generally improving, a K shaped recovery sees a significant portion of the population getting left behind. The possibility of a K shaped recovery has been informing many expert’s 2021 predictions.

Market recovery shows strong real estate 2021

According to the US Chamber of Commerce, this is what a K-shaped recovery looks like.

The California Association of Realtors (CAR), for example, has a rosy outlook for the 2021 real estate market in California. Still, it’s contingent upon a vaccine and proper medical guidelines reigning in the pandemic, and intervention from the federal government reigning in foreclosures and evictions. CAR’s outlook is far less rosy if the pandemic is mismanaged. 

As of this moment, the nationwide CDC moratorium is set to expire on December 31, 2020, and state-based eviction moratoriums like California’s AB3088 expire on February 1, 2021. When further relief comes and how much of it there will be is unknown. Additionally, the pandemic appears to be ramping up in severity going into the new year rather than slowing down.

If these two factors make the recovery take longer than hoped for, investors would benefit from knowing how to prepare for a rescission

Bottom Line

At the end of the day, how the pandemic is handled plays a big part in how forecasters make their predictions about the real estate market

The real estate investment market is expected to remain strong because of low-interest rates, high demand, and limited supply, but growth in the cost of homes is predicted to be more modest relative to the second half of 2020. 

However, the second half of 2021 remains shrouded in mystery, which means investors should remain cautiously optimistic.

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