Home Prices in 2021
Few people expected the real estate market to behave the way it did in 2020. At the onset of the pandemic, many predicted that we were going to experience a housing market crash like 2008. Instead, we saw home sales and home prices increase dramatically. The logic behind the impending crash that never happened made sense. Prognosticators assumed that as the pandemic caused unemployment to skyrocket, many would fall behind on rent and mortgage payments. This would lead to evictions and foreclosures that would flood the market and drive down home prices. However, these prognosticators didn’t factor in government moratoriums on evictions and foreclosures. Furthermore, they didn’t take into account that the Federal Reserve would slash interest rates and mortgage rates would drop to historic lows. Rock bottom mortgage rates fueled a real estate boom and higher home prices. What will happen to home prices for the rest of 2021?
The Factors Behind 2021 Home Prices
Home prices, like all prices, are shaped by supply and demand. Prices increased in 2020 because demand for new homes increased due to low mortgage rates, but supply remained limited. Lack of inventory and a slowdown of homes being built because of the pandemic meant that more people wanted to buy houses than were available. This saw sellers getting multiple bids for their homes and prices going through the roof. What can we expect from supply and demand for the rest of 2021?
The Demand for New Home Purchases in 2021
The biggest factor behind the increased number of home buyers has been mortgage rates. As we get near the end of the first month of 2021, mortgage rates remain low. However, there is reason to believe that rates will increase as the year goes on. The super low mortgage rates are all part of a strategy by the government to lessen the economic impact of the pandemic. As the pandemic recedes, mortgage rates will start to creep upward.
There are some signs that this creep is already happening. Some public health experts believe that we have already seen the worst of the winter surge, which is why some states are easing restrictions. This means that people are able to return to work and put money into the economy. Furthermore, the vaccine rollout is only continuing. As industries open up more and vaccines become more widespread, it is quite likely we will see mortgage rates increase. The question is how much will they increase? The answer to this is uncertain. While mortgage rates are unlikely to remain at historic lows, they are also not likely to return to pre-pandemic levels. Our economy is far from fully recovered, which means there is still a need to stimulate investment through low interest rates.
On some level, rising mortgage rates might take some energy out of the huge demand to buy a house. Although, increasing rates on home loans might fuel a different kind of demand. Anyone who has not already refinanced their home or who has not purchased a home might be in a rush to do it now. There are still savings to be had and home buyers and homeowners do not want to miss out on the benefits of low mortgage rates. So, while it is possible that demand might taper off, it will not go away in 2021.
The Supply of New Homes in 2021
Regardless of what happens to the demand-side of the equation for home prices, supply is destined to remain low for 2021. Homebuilders recognize that there is an opportunity to sell homes if they can just build the houses. That is why we have seen a significant increase in building permit applications in the beginning of the year. Even if more projects begin in the near future, they should not have a significant impact on the 2021 house inventory.
For starters, builders are facing a shortage of building supplies, particularly lumber. This is driving up the cost of supplies, which will in turn increase the cost of the finished houses. That means we are not likely to see a huge drop in home prices even if these new projects get on the market. New homes are more expensive to build, thus, they will be priced higher in the marketplace. Furthermore, it takes a long time to build new houses. Overall, it means that we should not see a huge jump in the supply of homes available for purchase this year. Thus, it is unlikely that prices will be impacted by a huge addition to the housing inventory, at least in 2021.
Final Thoughts
As we saw in 2020, real estate predictions are not an exact science. Unexpected events can change forecasts very quickly. However, if all of the factors discussed above remain true, we should see housing prices increase or at least remain as high as they are now throughout 2021. This has big implications for those who are interested in buying a house. If you have been sitting on the sidelines and waiting for prices to drop before you buy a new home, you shouldn’t hold your breath. Prices should not be dropping anytime soon. What will change, however, is the value you are getting on a home loan. If mortgage prices start to increase, then the huge savings you can get over the life of a loan will start to evaporate. Basically, if you have any desire to buy a home then the time to act is now.
Waiting around for a bargain on a new home will likely mean that you will end up missing out on favorable interest rates. If you want to take advantage of these rates, contact us now! We can give you our complimentary mortgage qualifier to see how close you are to buying a new home. Between favorable interest rates, specialized loan programs, and down payment assistance, you might be closer to having a dream home than you realize. The easiest way to find out if your dream of buying a home is close to being a reality is to speak with our professional independent mortgage brokers. We will analyze your situation and let you know about all the options that are available to you. However, if you wait too long to speak with us, you might just miss out on today’s rates and watch prices go even higher.
