The end of every year brings an eagerness for new beginnings and predictions for what lies ahead. As stay-at-home life hampered the housing market in early 2020, record-low interest rates and a wave of more buyers than sellers bolstered sales in summer and fall, ending the year with an average 7.6% increase in home price over last year. Housing industry experts are predicting another strong year for 2021 with a notable difference: We aren’t likely to face the wild swings seen this year. Here are the highlights.
Home Prices Will Rise in Most Cities, But at a Lower Rate
Major cities saw a healthy increase in home price over 2019. Locally, Cincinnati saw a 4.9% increase in price, year over year, and is predicted to continue to climb closer to 3.8% growth over 2020’s home prices. Part of the difference is due to that fact that, after spring of this year, a wave of buyers emerged while sellers continued to weigh their options, contemplating whether to stay put until post-pandemic days or take advantage of the demand. The imbalance of buyer to seller ratio created a more competitive landscape for buyers and drove up prices.
Inventory Will Remain Tight
There were half a million fewer homes for sale this fall than in 2019 and a 4 million shortfall of new construction homes. The declining trend of inventory year after year is predicted to slow down. Some experts even predict a small increase in inventory by the end of 2021.
Mortgage Rates Will Hover around 3%
As of year-end 2020, mortgage rates were around 2.8%. Freddie Mac issued a report that predicted rates would stay in the 3% range in the coming year: “Given weakness in the broader economy, the Federal Reserve’s signal that its policy rate will remain low until inflation picks up, and no signs of inflation, we forecast mortgage rates to remain flat over the next year.”
Key Trends to Watch in 2021
Millennials continue to dominate the profile of first-time home buyers as well as move-up buyers. Gen Z entered the market and continues to compete in the first-time home buyer segment. As home prices increase, these buyers will need to put down larger down-payments and take on larger monthly mortgage payments.
Remote work will continue to impact housing as spending more time in the home makes people reevaluate what they need in a house. Some of those needs now include “Zoom rooms,” separate office space, quiet yards that facilitate outdoor work space, and proximity to coffee shops that offer another work option and break away from the home.
Suburban migration is another trend due to increased remote work. As employers become more flexible with at least partial remote work, people find that they no longer need to live close to the urban office. With fewer days to commute, many workers are more willing to move further away for more space.
What Can Buyers and Sellers Expect in 2021?
Buyers can expect continued competition, although not as frenzied as seen this year. Being prepared with mortgage pre-approval and the ability to make a quick decision on a home will continue to give buyers an edge. Sellers will still be in a good position to make a timely sale as long as they maintain reasonable expectations in line with their local market. Sale prices will continue to grow, though likely at a slightly lower rate than 2020.
Real Estate Term of the Week
Loan Origination Fee: Fees paid to your mortgage lender or broker for processing the mortgage application. This fee is usually in the form of points. One point equals one percent of the mortgage amount.