2021 Is Primed for a Housing Boom
The 2020 housing market defied expectations. Many predicted a crash similar to 2008. However, that did not happen. Instead, new home sales increased and home prices skyrocketed. As we come to the end of 2020 many are wondering what will be in store for the real estate market in 2021. Will the crash that everyone expected in 2020 finally happen? Or, will people continue to buy homes in droves and take advantage of historically low mortgage rates? While nobody has a crystal ball and it is impossible to be absolutely certain, there are some good indicators that 2021 is poised for a housing boom.
The Reasons for a Potential 2021 Real Estate Market Crash
Many feared at the beginning of the pandemic that we were on the verge of a real estate market crash that never materialized. The reason for this was because of the economic impacts of the pandemic. In order to control the spread of the virus many states instituted strict lockdowns that caused financial stress for many. Millions of Americans lost their jobs as entire industries were shut down to stop the spread of the virus. Restaurants and entertainment venues were particularly hard hit by the efforts to control the pandemic.
The fear is that with millions of Americans out of work that many households would fall behind on their rent and mortgages. This would then lead to a wave of evictions and foreclosures that would flood the real estate market with new inventory. A rapid influx in the number of homes on the market would bottom out home prices similar to 2008. Fortunately, the wave of foreclosures and evictions never happened because the federal government and state governments initiated moratoriums on evictions and foreclosures.
It is possible that the wave of foreclosures and evictions were not stopped. Instead, it was merely delayed. There is a chance that this wave finally materializes in 2021 and the real estate crash predicted for this year happens next year. There is data to support this. First, the pandemic is more out of control that it has been at any point. We are seeing record numbers of cases, hospitalizations, and deaths. States like California and New Mexico have already returned to strict lockdowns. Places like New York are considering doing it themselves if numbers do not improve shortly. This means that we have not seen the end of staggering unemployment figures and people falling behind on their rent and mortgage. Everything is in place for a possible crash. However, the table is also set for even more home sales and home prices rising even higher.
The Reasons for a Potential 2021 Real Estate Market Boom
Even though the pandemic is still raging, the factors are in place for the real estate market to experience outrageous growth in 2021. The real estate market, like any market, relies on supply and demand. If there is a significant demand for people to buy homes, but not enough of a supply, then home prices will rise. This was true in 2020 and should still be true in 2021.
The demand for buying a new home has been high and will remain high. The number one reason why people want to buy a new home is that mortgage rates have been at historic lows. If you qualify for one of these rock bottom mortgage rates, then you can save a lot over the lifetime of your loan. Even if you are not looking to buy a new home, this is also a great opportunity for people to refinance their current mortgage. Decreasing your mortgage by even a few points can save you a ton of money over the life of your loan. With home prices rising, it also gives a great opportunity to build equity quicker. There is no reason to think these rates will increase anytime soon. With the pandemic still in ongoing the Federal Reserve has every incentive to keep rates low in order to spur investment.
Since mortgage rates should remain low, which will mean that demand stays high, the only thing necessary for a 2021 housing market boom is low supply. There are two ways for the supply of homes to dramatically increase. The first is for already built homes to suddenly become available. This is what people waiting for a housing crash are expecting. A potential tsunami of foreclosures and evictions suddenly places a lot of homes on the market, which causes home prices to crash. All signs are pointing to this not happening. A vast majority of mortgage forbearance plans are being extended. Furthermore, there are good indications that the federal government will extend mortgage and rent relief in the next round of stimulus. Even without the federal government stimulus, many states are extending their own moratoriums on evictions and foreclosures. Governments seem set on net letting the housing market crash of 2008 repeat itself.
There is more good news on the horizon when it comes to the pandemic. Two different vaccines have proven effective at stopping the coronavirus and they will start to be administered as soon as this month. It will still take many months for everyone who wants a vaccine to get one, but it does mean that good news is on the horizon. Once the vaccine becomes widespread it will mean that the sectors of the economy most vulnerable to shut downs can operate safely. This will mean millions of people can go back to work and people will catch up on rent and mortgage payments. So, not only will interest rates be low, but many will have the financial security to take advantage of them.
The second way that the supply of houses could increase dramatically is if a lot more houses were suddenly built. However, that is not likely to happen. Right now, housing manufacturers are not able to keep up with the demand even if they are working at full speed. But, housing manufacturers are building homes at much slower rates than usual. Home builders are facing two types of shortages that are impacting how many homes they put on the market; supplies and labor. Even though the demand for houses is high, there are not enough people to build them. There is a considerable shortage in skilled labor that is preventing home builders from keeping up with all the people that want to buy homes. On top of the labor shortage, it is also hard for manufacturers to get the supplies they need to build new houses, particularly lumber. The shortages of labor and supplies is making it very hard for home builders to keep up with demand. This means that the supply of homes should stay low throughout 2021. So, as long as demand for homes remains high, all the components are there for a housing boom.
Final Thoughts
The magical real estate market of 2020 is primed to continue into 2021 in spite of the pandemic. As long as interest rates remain low, those that are able to qualify for a mortgage will take advantage of current rates. Even as home prices rise, the potential long term savings of having a low mortgage rate means that we should not see a slowdown in home sales next year.
This that it might not be advisable to sit on the sidelines and wait for the market to crash before trying to get a new home of your own. Even if you might be afraid of buying a house now for it to only be available next year at a considerably lower price, the opposite is even worse. If the housing demand stays high and the supply stays low, waiting around for a discount might mean that you will end up having to pay even more as home prices increase. If you have been thinking about buying a dream of your own, then the time to do it is now. Contact us right away to see if you qualify for today’s historically low mortgage rates. The 2021 real estate market is poised for another fantastic year and you want to prepare yourself now to take advantage of it.
