2020 Real Estate Roundup | 2021 Real Estate Predictions
The coronavirus pandemic impacted the lives of people worldwide. Amid the pandemic, the economy faced a recession, high unemployment rates, low mortgage interest rates, and a shortage of inventory. Perhaps the most surprising outcome of COVID was what it did to the real estate market. While the pandemic did disrupt home sales in the spring of 2020 (which is usually considered the hottest season for real estate), the market quickly made an impressive rebound.
What we saw:
Before COVID-19, in the first two months of the year, the 2020 housing market appeared on a powerful upswing. On average, purchase applications showed double-digit growth from January up until March 18. Once it became apparent that the virus was here in our country, and communities began shutting down the thriving 2020 housing market took a sharp dive. We had four straight weeks of year-over-year declines in the housing market, but then it stopped going down. The next five weeks still showed negative growth but started to stabilize. After nine weeks of decline, the purchase applications started coming in, and the rest of this story is for the record books. Purchase applications have enjoyed 29 straight weeks of growth, year over year.
Mortgage Rates:
Mortgage rates hit all time lows more than a dozen times in 2020. The average interest rate on a 20 year fixed rate mortgage was 2.865%. In fact, Freddie Mac reported an all-time-low 30-year fixed rate of 2.71% during the week of December 10. Lower rates made homes affordable but at the same time pushed prices higher by allowing people to bid more.
Inventory Issues:
The low-interest rates coupled with the need for a home that fits today’s lifestyle needs have created a buyer demand that has far outpaced the available inventory and available inventory went quickly. The one downside of the 2020 housing market was the rapid home-price growth. The pandemic obviously had a lot to do with this considering the home has become such an important piece of our lives in 2020. It’s not only where you live but can also be where you work, workout, and spend the majority of your social life.
Proposition 19:
While everyone was on pins and needles awaiting the outcome of the Presidential election, proposition 19 was easily overlooked. Passing with a slim majority of 51%, prop. 19 will affect California homeowners 55 and over and those who will be inheriting real estate. Prop 19. Will allow homeowners aged 55 and over to transfer their low property tax value to a replacement home anywhere in California. On the flip side, for anyone who inherits real estate that is not the primary residence of the parent and does not intend to be the primary resident of the child, the property taxes will be assessed to current market value. Prop 19 is a hot issue coming out of 2020.
What to Expect in 2021:
1. Interest Rates to remain low
Interest rates are expected to remain low, which typically lures people into the market. Economists suggest interest rates will continue to hover around 3% in 2021. The Federal Reserve’s actions are critical to the direction mortgages rates will go. The Federal Reserve has indicated they want to pursue this low interest rate policy for a long period, over the next two or three years. Although the Federal Reserve doesn’t directly control mortgage rates, conventional wisdom says that its actions will indirectly impact rates. Low mortgage rates continue to provide greater purchasing power, especially for first-time home buyers.
2. A real estate market crash looks unlikely
With all the uncertainty behind everything that happened in 2020 and with home price growth possibly slowing down in 2021, you might be wondering if the housing market could collapse. Well, it’s impossible to know for sure, but economists suggest a housing crash is unlikely. After all, the super low mortgage rates are motivating buyers to enter the market, which increases demand. But there’s still a very low supply of home listings. This is keeping home buying competitive and allowing home price growth to soar.
3. Equity won’t decrease through 2021
Freddie Mac believes home prices will continue to rise in 2021—but at a slower pace of nearly 3%. This is still good news for sellers because you’ll likely make a nice profit when you do decide to sell.
The housing market will continue to struggle with an imbalance between supply and demand, which will lead to sustained competition among buyers and further home price appreciation. Even as the pandemic hopefully nears its end, Americans will continue to buy homes that fit their new lifestyle. Buyers aren’t waiting for a return to normal. They are anticipating a new normal in which they live, work, and entrain differently than ever before. As a result, we will see more home sales in 2021 than any other year since 2006. Projections estimate annual sales growth will increase from 5% in 2020 to 10% in 2021.
