7 Key Trends Expected To Shape Real Estate in 2021

Major moments in history tend to fuel underlying trends in the real estate market. The COVID-19 pandemic is no different. Many trends that will emerge in 2021 had been brewing for several years but are now front and center because of the economic uncertainty and dramatic shift in daily life of Americans. These seven key trends will shape real estate in 2021.  

One of the lasting trends from the COVID-19 pandemic is low interest rates. Thirty year fixed mortgage rates hit their peak at 3.65% the second week of January 2020 and the third week of March 2020. From the last high point in March 2020, rates fell as cases of COVID-19 rose across the United States. Rates continued to fall through the remainder of 2020 and found their low point at 2.66% the week ending December 24, 2020.  Even as 2021 began rates were a full percentage lower at the same in 2020 with a 30 year fix rate mortgage average of 2.65%. There has been a slight uptick in rates (2.79%) however, that uptick is not considered to be a predictor of consistent upward trend throughout 2021. In fact, it is expected that while rates will fluctuate through the year, they will remain low for most of 2021 due to the continuing effects of the pandemic on the economy.  

There is little doubt that 2021 will continue to be a seller’s market due to the lack of housing inventory and buyer’s desire to cash in on low mortgage rates. Low inventory in housing was already beginning to show before the pandemic moved across the country. Inventory of homes for sale fell by 14% in January of 2020 with entry-level homes seeing the largest decline. With such limited supply continuing, total home sales will continue to outpace new listings in 2021, contributing to an increasingly competitive housing market.  

One answer to limited housing inventory that appears to be gaining steam is homebuilding. New home construction at the end of 2020 was 12.8% higher than the rate of housing starts at the same time in 2019. A promising sign that home building will continue to rise is the Mortgage Bankers Association forecast of around 1.134 million single-family housing starts.  Even with increased home building in 2021, there will not be a huge surge of homes into the marketplace.  This means first time home buyers will still have difficulty with heavy competition and high cost of homes.  The 2021 average market price for homes will continue to rise. Home prices in 2020 closed out about 7.6% above the 2019 average. The increase is expected to continue with approximately 5%-6% additional increase in home prices by the end of 2021.  

Millennials who have filled a large portion of the home buying gap in 2020 will continue to be a prevalent source of shifting demand in the housing market. As the largest generation in history, millennials are the tech generation that seem to be meeting the moment of remote work during a global pandemic. And with a new flexibility to work from home, buyers are taking advantage of leaving cramped cities and moving to the suburbs. The trend toward purchasing a home in the suburbs is not new but has intensified due to the pandemic. Lower taxes, lower home prices, work from home opportunities, and a general desire to begin family life in the suburbs are all driving forces behind the trend in suburban home buying.  

As buyers search for new or first time homes, they are looking for larger and healthier more efficient homes. New home sizes, according to the National Association of Home builders, will increase in square footage by about 5% or roughly 2,487 square feet.  Additionally 66% of agents surveyed said buyers were deciding to trade-up from small starter homes faster this year. Defined spaces, energy efficient windows and appliances, up to date air filtration systems and water conservation features are all part of the 2021 trend toward healthier homes.  

A surge in vacation home buying began in July of 2020 and has yet to slow down.  According to the National Association of Realtors vacation home purchases increased 44% over the same time period as the previous year. In 2021, the vacation home demand is not showing signs of slowing down. Currently, 66% of agents nationwide say there has been an increase in buyer demand for a second home.  Why the shift to vacation home buying?  The most obvious reason for the increase in vacation home purchases is the opportunity to work from home in a warm climate (49.6%). And who wouldn’t want to spend their days working from the luxury of a warm seaside vacation home? Another factor is simply the desire to avoid travel during the pandemic (49.4%).   Two other reasons for purchasing a vacation home are to cash in on low mortgage rates (47.5%) and to use as a potential rental income in the future (40.7%).    

Despite the economic downturn and high unemployment due to COVID-19 the real estate market continued to be a bright spot in 2020. There is no doubt that 2021 buyers will continue to adjust to their new normal. Their housing demands will adapt as they tailor their needs to the current real estate trends of low inventory, high prices, and a shift to suburban living.  

 

VIA Homelight