Here are the latest housing market predictions and forecasts for 2021 & 2022. The global pandemic shattered the world order and the US economy suffered its biggest blow since the Great Depression in the second quarter. The housing market too briefly hit pause in spring due to uncertainty and widespread stay-home orders but 2020 was a record-breaking year in the residential real estate market.
Despite the pandemic-induced recession, house prices in all the major markets continue to rise. According to economists and market watchers, the residential real estate sector has been highly supportive of the economic recovery of the country so far. It has emerged as a pillar of support for the economy.
Although millions were laid off or furloughed it didn’t prevent house hunters from buying homes across the nation. As a result, the housing market saw the highest pace of sales growth since the height of the unprecedented housing boom in 2005. That expansion was driven by negligent lending in the subprime mortgage market and the current housing boom is driven by the intense demand and record-low mortgage rates.
Both of these factors were driven by the coronavirus pandemic. Housing prices had already started rising before the pandemic arrived but the pandemic created a rapid acceleration in double-digits. The housing market has seen record-breaking growth since June after briefly put on hold during the outbreak of the pandemic this spring. As prices keep climbing month-over-month, it just shows the resilience of the US housing market in the face of an ongoing economic recession.
Despite looming economic uncertainty, highly controversial elections, and the aggravated spread of the pandemic, home buyers continue to quickly snatch up the relatively few homes listed for sale. The pandemic has really knocked down homebuilders’ ability to fill the housing supply as they are running out of land. The housing market has already been running too short of previously owned homes.
The number of homes for sale has plummeted and remained down around 30 percent of what it has been in recent years — leaving the market with nearly twice the demand and two-thirds of the supply. Both the inventory of homes and mortgage rates are now at their historic lows. The rise in remote work has also sparked a new suburban boom and the scarcity of developed land means that builders could be unable to meet the rising demand and home prices would continue to rise in 2021.
One thing that has been talked about a lot is that suburban housing markets are booming because of outbound migration from cities. The pandemic has caused some homebuyers to search for homes in a different area than originally planned. Various surveys indicate that interest in rural areas and suburbs is up and interest in urban areas is down.
However, Zillow published an exhaustive study examining every conceivable housing-market data point related to cities and suburbia to see if there are major divergences that suggest an urban-to-suburban migration trend.
According to that study, suburban housing markets have not strengthened at a disproportionately rapid pace compared to urban markets. Both region types appear to be hot sellers’ markets right now – while many suburban areas have seen a strong improvement in housing activity in recent months, so, too, have many urban areas.
Nevertheless, the pandemic has increased the desire for houses with a bit more space and a garden. Couple that with record-low interest rates, and prices are rising dramatically all over the country from urban-to-suburban markets.
Will There Be An Housing Affordability Crisis?
The combination of intense demand and the low mortgage rates has pushed home prices to levels that are making it difficult to save for a down payment, particularly among first-time buyers. While we still face economic and health challenges ahead, it is no doubt that the nation will continue to recover from this pandemic and an improving economy will continue to prop up the housing market competition. Industry experts believe the housing market will remain strong and is set to break more records in 2021.
Various national surveys (which you can read below) show that consumers are eager to spend more on housing in 2021, as the economy continues to slowly recover from the pandemic. Strong growth is expected in 2021 for housing sales, rents, and home prices. A report from the Federal Reserve Bank of New York found that the median household expects to increase their spending by 3.7% in the next twelve months, the most optimistic outlook since 2016.
This time the housing market is largely being driven by two factors: a shortage of available housing inventory and extremely low-interest rates. Double-digit annual growth in both list and sale prices show an extreme lack of inventory and incredible demand — A sign of a seller’s real estate market. The housing market is still hot, but we may be starting to see rising home prices hurting affordability unless the mortgage rates continue to decline in 2021.
Mortgage Rates have hit a new record low in the first week of 2021. Mortgage applications increased 1.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 11, 2020. Despite a full percentage point decline in rates over the past year, housing affordability has decreased because the effect of lower mortgage rates (for buyers) is being evened out by double-digit home price growth.
According to some industry sources, rates are expected to rise modestly in 2021. The combination of rising mortgage rates and increasing home prices will accelerate the decline in affordability and further squeeze potential home buyers during the spring home sales season. According to Bankrate’s latest survey of the nation’s largest mortgage lenders, the benchmark 30-year fixed mortgage rate is 2.840%.
According to Realtor.com, the December national median listing price was $340,000, up 13.4% compared to last year. Large metros saw an average price gain of 8.8% compared to last year. Assuming a buyer provided a 20% down payment, the principal and interest payments on the mortgage would have been $1,669 a month.
Contrast that with December 2019, when the median price was around $300K and the average interest rate on a 30-year mortgage was around 3.58%, according to Freddie Mac. A buyer faced a payment of $1,579, or $90 less a month than what he is paying now. Assume that builders and sellers had met buyer demand, keeping prices flat over the year. Lower mortgage rates would have resulted in a monthly payment of $1,482, or a savings of $97 a month as compared to a year before.
Therefore, low mortgage rates help but don’t eliminate the risk of affordability crunch that the housing market could still face if home prices continue to rise at a rapid pace. But if rates stay this way or possibly even go a little lower in 2021, then it will keep the homebuyers active and they would keep the housing market afloat. More and more homeowners (borrowers) can opt to refinance at today’s rates to cut their monthly mortgage payments.
Home Value Growth Hasn’t Ended Yet
Zillow Economic Research predicts that home values will increase by 3.6% in the next three months until Feb 2021. Another forecast is that home values will appreciate by 10.3% in the twelve months ending November 2021. The current forecast also calls for sales volume to remain elevated in the coming year, finishing 2021 at 6.9 million sales, the most since 2005. In previous forecasts, the company predicted a 4.8 percent increase in home values between August 2020 and August 2021.
Existing home sales also show the tightest housing market on record. We typically see a decline in demand and a big increase in time on the market before the end of November that points to a seasonal slowdown, but this demand has not gotten significantly shorter since May, and buyers and sellers are continuing to connect at a record pace.
If this trend continues, that’s a signal that the real estate market is going to remain sizzling hot even during the holiday season. This trend shows that the housing market is as strong as it was during the housing bubble. It is nowhere to close to a level where you can imagine the balance real estate market conditions.
Speedy home sales continue in all regions of the country and the median sales price continues to have double-digit growth. The flow of buyers and sellers has remained abnormally high in the entire fall season. Not only the housing demand but the supply of new listings has also reached the highest point since the onset of the pandemic. Although sellers are listing more & more homes we need more new home supply to add to inventory and slow these sharp price increases.
The current extreme demand that is reflected in sharply rising prices, can be attributed to the pent-up demand for home purchases from the March-July period when a great part of the country was in total lockdown. The housing sales and prices have stayed strong through the summer months amid increasingly short inventory and high demand.
This strong buyer activity points to a fall & winter housing market that is more active than normal, where buyers may face more competition and may have to act more quickly than usual to snag their dream home. In the winter season, the sales and prices will continue to rise year-over-year but at a slower pace.
As was expected, real estate activity was much better this holiday season compared to last year. Realtor.com’s December 2020 housing data release shows that listing prices continued to increase at double-digit rates compared to last year, fueled by buyer demand, which also continued to snap up homes at a rate almost two weeks more quickly than last year. Extremely low mortgage rates contributed to demand and relative affordability.
- National inventory declined by 39.6% over the last year and fell below 700,000 for the first time in their records.
- The inventory of newly listed properties declined by 0.8% nationally and grew by 7.6% for large metros over the past year.
- The December national median listing price was $340,000, up 13.4% compared to last year. Large metros saw an average price gain of 8.8% compared to last year.
- Nationally, the typical home spent 66 days on the market in December, 13 days less than the same time last year.
With a shallower than normal pullback, the market is setting up for a strong start to 2021, especially if the new supply continues to improve. Buyer demand remains far more recovered than supply and continues to grow. With supply-constrained and demand boosted, house prices seem to rest on solid foundations for next year. They are likely to hold up even if there is a decline in transaction activity in the coming months.
In December, seller activity also improved, with new listings growing in many large markets, especially in the West and Northeast. The continued addition of new listings is much-needed to provide some relief to homebuyers in a tight housing market in the spring of 2021. Regionally, newly listed homes grew most in the West (+30.8% year-over-year) and Northeast (+15.0%), while remaining flat in the Midwest (+0.2%) and still in decline in the South (-4.0%).
The West’s combined average surge in new listings is primarily attributed to San Jose (+123.8%) and San Francisco (+98.9%), which saw far more new listings this December compared to 2019. Nationally, the inventory of homes for sale in December decreased by 39.6% over the past year, a slightly higher rate of decline compared to the 39.2% drop in November.
This steadiness suggests despite improvements in the trend of new sellers, the current trend gives no relief to buyers because it would not slow down the price growth. Steady declines in active inventory especially in the face of an improving new listings growth trend suggest that buyers are quickly putting offers on homes.
The housing market continues to favor sellers. With high interest from buyers and a limited flow of new listings, the total active listings have been lagging from the previous year. Homes are being sold at an increasingly fast pace when compared to the previous year. The typical home spent 66 days on the market this December, which is 13 days less than last year.
As new inventory comes on to the market. they are quickly taken out of the market from heavy buyer competition. Therefore, housing units are still in short supply with unsold inventory sitting at a 2.7-month supply at the current sales pace.
New Single-Family Housing Construction Trends
The NAHB gets input from builders on how confident they are in the housing market based on buyer behavior, sales, and incorporates any forecasts as well. The building permits have rebounded from pandemic lows and builders are racing to fill the gap between supply and demand.
Accelerated growth rates in home construction figures in November showcase the enduring strength of the housing and homebuilding markets and suggest that builders are overcoming the constraints that have limited activity in recent months. NAHB/Wells Fargo HMI index, which represents the builder sentiment, sat at a record high in November and pulled back only slightly in December.
Ending a string of three successive months of record highs, builder confidence in the market for newly-built single-family homes fell four points to 86 in December. HMI index was at an all-time high at 90 in November. Builder confidence levels have hit successive all-time highs over the past three months. It’s an indication that housing continues to lead the economy forward. Record low mortgage rates have boosted demand for new homes.
The HMI index gauging current sales conditions dropped four points to 92, the component measuring sales expectations in the next six months fell four points to 85 and the gauge charting traffic of prospective buyers also decreased four points to 73.
It is a diffusion index, which means that a reading above 50 indicates a favorable outlook on home sales as more builders view sales conditions as good compared with those who view them as poor. Below 50 indicates a negative outlook.
Looking at the three-month moving averages for regional HMI scores, the Northeast fell one point to 82, the Midwest was up one point to 81, the South rose one point to 87 and the West increased two points to 96.
“Housing demand is strong entering 2021, however, the coming year will see housing affordability challenges as inventory remain low and construction costs are rising,” said NAHB Chairman Chuck Fowke. “Policymakers should take note to avoid increasing regulatory costs associated with land development and residential construction.”
Land and material availability and a persistent skilled labor shortage will continue to place upward pressure on construction costs resulting in limited housing supply. As the economy improves with the deployment of a COVID-19 vaccine, interest rates will increase in 2021, further challenging housing affordability in the face of strong demand for single-family homes.
NAHB also noted that a shift toward suburban areas working in tandem with incredibly low-interest rates has kept builders busy. However, that may translate to higher costs and delays in receiving building materials, due to high demand, low supply, and 20 percent tariffs on Canadian supply. As the cost of lumber has soared to record highs many buyers are finding themselves priced out of the new-home market.
“Lumber prices are now up more than 170 percent since mid-April, adding more than $16,000 to the price of a typical new single-family home,” NAHB Chief Economist Robert Dietz said in a statement.
New Residential Home Sales: November 2020
Sales of existing home sales are at an all-time high but new home sales have also risen during the pandemic. Those sales are allowing builders to raise prices. Buyer traffic is converting into sales at a record rate. According to Urban Land Institute, real estate market conditions and values in the U.S. are expected to rebound in 2021 and trend even higher in 2022, with single-family homes outperforming other sectors such as commercial, retail, hotel, and rental.
New single-family construction starts will fall slightly to 871,250 in 2020 before rising to 940,000 in 2021 and 975,000 in 2022, the highest level since 2006. In the meantime, home prices will grow an average of 4.1% over the next three years, above the long-term average of 3.9%, according to the report, based on a survey of 43 economists at 37 leading real estate organizations.
Sales of new single-family houses in November 2020 were at a seasonally adjusted annual rate of 841,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 11.0 percent (±9.5 percent) below the revised October rate of 945,000 but is 20.8 percent (±19.5 percent) above the November 2019 estimate of 696,000.
The median sales price of new houses sold in November 2020 was $335,300. The average sales price was $390,100. The seasonally-adjusted estimate of new houses for sale at the end of November was 286,000. This represents a supply of 4.1 months at the current sales rate.
Till the time coronavirus pandemic exists it will lead to a see-saw recovery with ups and downs. Let us discuss in detail the various housing indices & their predictions for 2020 & 2021. We have updated this article with the latest housing market report from various credible sources like Realtor.com (check reference section).
National Multifamily Housing Trends
U.S. rental payment rates appear to be staying afloat. The National Multifamily Housing Council found 89.8 percent of apartment households made a full or partial rent payment by December 20 in its survey of 11.5 million units of professionally managed apartment units across the country.
This is a 3.4 percentage point, or 392,952 household decrease from the share who paid rent through December 20, 2019, and compares to 90.3 percent that had paid by November 20, 2020. These data encompass a wide variety of market-rate rental properties across the United States, which can vary by size, type, and average rental price.
Housing Market and Mortgage Delinquencies
To help borrowers at risk of losing their home due to the coronavirus national emergency, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac (the Enterprises) has extended the moratoriums on single-family foreclosures and real estate owned (REO) evictions until at least January 31, 2021, giving relief to more than 28 million homeowners with an Enterprise-backed mortgage.
Per the last three extensions, the FHFA said it will continue to monitor the effect of coronavirus on the mortgage industry and update its policies as needed. As of now record-low mortgage rates and shortage of inventory are keeping the US housing market strong concerning buyer demand. Both prices and sales have been surging month-over-month breaking new records.
Mortgage delinquencies improved Again in November 2020 but nearly 2.2 million seriously past-due mortgages remain, according to the latest data released by Black Knight.
- Despite seasonal headwinds, mortgage delinquencies improved for the sixth consecutive month in November 2020, falling to 6.33% from 6.44% in the month prior.
- The national delinquency rate is now down 1.5 percentage points from its peak of 7.8% in May but remains a full three percentage points (+93%) above pre-pandemic levels.
- While early-stage delinquencies – borrowers with one or two payments past due – have fallen back below pre-pandemic levels, seriously past-due (90+ days) mortgages remain 1.8 million above pre-pandemic levels.
- Foreclosure activity remains muted as widespread moratoriums remain in place.
- November’s 4,400 foreclosure starts and 176,000 loans in active foreclosure are both at their lowest levels on record since Black Knight began reporting the metrics in 2000.
- Prepayments fell 11% from October’s 16-year high; however, with interest rates at record lows and refinance incentives at an all-time high, prepay activity is likely to remain elevated in the coming months.
ATTOM Data Solutions, licensor of the nation’s most comprehensive foreclosure data releasedits November 2020 U.S. Foreclosure Market Report, which shows there were a total of 10,042 U.S. properties with foreclosure filings — default notices, scheduled auctions, or bank repossessions in November 2020, down 14 percent from a month ago and down 80 percent from a year ago.
While there was a decline in foreclosure, the houisng markets where people are moving from urban areas to the suburbs – like New York City, Chicago, and Miami – were among the markets with the highest levels of foreclosure actions. Florida, Illinois, and Oklahoma post the highest state foreclosure rates.
Nationwide one in every 13,581 housing units had a foreclosure filing in November 2020. A total of 5,256 U.S. properties started the foreclosure process in November 2020, down 13 percent from last month and down 79 percent from a year ago. While foreclosure starts are down in many states across the nation, a few states did see monthly increases in foreclosure starts in November 2020, including Missouri (up 18 percent), Indiana (up 14 percent), Georgia (up 4 percent), Arizona (up 1 percent), and Texas (up 1 percent).
Among metropolitan areas with a population greater than 1 million, those with the greatest number of foreclosure starts in November 2020 were New York, NY (454 foreclosure starts); St. Louis, MO (208 foreclosure starts), Chicago, IL (207 foreclosure starts); Miami, FL (151 foreclosure starts); and Los Angeles, CA (147 foreclosure starts).
Lenders foreclosed (REO) on a total of 2,010 U.S. properties in November 2020, down 22 percent from last month and down 86 percent from a year ago.
Source: noradarealestate.com
