Home Sale Predictions 2021

home sale predictions
Home equity 2020

Given the performance of the housing market this year, can we make home sale predictions for next year? The housing market had quite a year!  It’s amazing how resilient the market is, which demonstrates the appeal of homeownership.  Even after a significant spring slowdown, home sales rebounded to record levels in the fall.  NAR’s Existing Home Sales and Pending Home Sale Indices for October 2020 increased year-over-year 26.6 and 20 percent respectively (nar.realtor).  Even as we headed toward the holidays, NAR’s November Existing Home Sales increased 25.8 percent year-over-year.  And year-over-year median home prices increased 14.6 percent. 

While some experts expect the recent housing market activity to continue, others question if this intense home buying is sustainable.  Making home sale predictions for the new year has always been predicated on recent trends.  However, 2020 was different.  Unexpected and unusual events occurred throughout the year affecting the housing market.  First taking a pause because of an economic shock, home sales made up ground later in the year. 

Recent trends suggest that home buying will continue at a healthy rate, as long as the economy remains relatively similar.  However, being an election year there is anticipation for change.  Even many economists, who are typically ready to offer their opinion, are ambivalent about the economy.  This may suggest that the economic outlook for the near future is uncertain.

A main factor to watch in 2021, is employment.  It’s a known fact that unemployment directly effects home sales.  In periods of increasing unemployment, home sales decline.  A 2010 Florida Realtors (floridayrealtors.org) survey demonstrated a correlation between unemployment and foreclosures.  There is no coincidence that home sales strongly rebounded along with employment and the economy.  If employment remains stable into 2021, home sales will continue to over-perform. 

Other factors that will drive the housing market in 2021 include mortgage interest rates, home sale inventory, and home buyer demand. 

Mortgage rates have been relatively low since 2008.  At that time, rates hovered in the low 4’s, and were though to be “historically low.”  Also, consider that mortgage rates were in the 18 percent range during the early 1980’s.  Even during the go-go market of 2005-2006, rates hovered in the 6 percent range.  But the most recent mortgage interest rate average of 2.66 percent for a 30-year-fixed rate is described as “another record low” by Freddie Mac’s December 24th 2020 Primary Mortgage Market Survey (freddiemac.com).  If mortgage rates remain low, home buyers will be incentivized to buy homes.

Another after-effect of the Great Recession, which continues today, is low home sale inventory.  The Great Recession changed how consumers thought of housing.  Since 2008, home owners have remained in their homes much longer.  Many growing families make due with smaller spaces, rather than moving-up to a larger home.  Many older home owners are deciding to “age in place,” in lieu of down-sizing.  And telecommuting is outpacing job relocation.  Home sale inventory of non-distressed properties will continue to remain low through 2021.

There is always “home buyer demand.”  Meaning there are always active home buyers.  However, the strength of the demand varies.  Home buyer demand is typically gauged in hindsight through home sales and pending home sales.  When you combine housing stats with other factors, such as employment, economy, and mortgage rates you can estimate the strength of future home buyer demand.  If economic factors remain stable, home buyer demand will continue to be strong in 2021. 

Original published at https://dankrell.com/blog/2020/12/27/home-sale-predictions-2021/

By Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.