The 2021 housing market is shaping up to be even hotter than 2020
Soaring home prices, low supply, and remote work could sending the housing market into a frenzy
The housing market is set to eclipse last year’s gains thanks to low supply and soaring demand. That isn’t necessarily good news.
According to a recent study by Redfin, scarcity of available homes is bolstering the pandemic-driven seller’s market, a trend that will continue for at least the first half of 2021.
“The main thing going on is scarcity of homes for sale. There’s nothing there, so people want it even more,” Seattle Redfin real estate agent Scott Petrich said in a statement.
“Potential homebuyers who don’t have a good amount of savings are having a very hard time getting a house right now because the lack of supply is driving up prices, while low mortgage rates increase demand,” he continued.
For the week ending January 24, home-sale prices soared 18% and pending sales grew 28% when compared to the same time frame in 2020. Moreover, homebuyer demand is up 60% while housing supply is up just 13%, according to the report.
But, these home values are becoming increasingly detached from the quality of homes for sale as both the number of homes for sale and the rate that new homes are being listed for sale continue to fall from last year’s already-low levels.
For example, the number of homes for sale has decreased 36% year-over-year, while the rate of new homes being listed is down 13%. Meanwhile, the average number of days a home was on the market dropped from over 50 days to 34, according to Redfin. This speaks to the impact scarcity is having on existing home prices.
As for demand, Redfin’s chief economist Daryl Fairweather expects increased COVID-19 vaccination rates and rock-bottom mortgage rates to continue to fuel the housing market’s expansion.
“Once many more people are vaccinated for the coronavirus and more homeowners start to feel comfortable listing their homes for sale, the current deadlock of housing supply should start to loosen,” Fairweather said in a statement.
One reason for the shortage of homes on the market is the COVID-19 pandemic. Since mid-March, homeowners have been reluctant to list homes while many others pulled their listings, according to a report by Realtor.com.
Meanwhile, the threat of contracting the virus from a potential home buyer or listing agent has made other home owners reluctant to list their property.
“It’s tough for buyers, particularly first-time buyers dealing with limited options and fast-rising prices,” Realtor.com Chief Economist Danielle Hale said in a statement. “We’re looking at an all-time low number of homes for sale and record numbers of buyers trying to get into the market.”
In all, there are 443,000 fewer homes on the market this year compared to last, NAR found. This shortage is a primary factor in the ballooning national average home value, which increased to $336,000 in 2020.
All-time High Demand
Paradoxically, skyrocketing home values have done little to temper demand for housing, most of which is concentrated in the suburbs.
“It used to be that homebuyers who were priced out of the closer-in suburbs would look farther out for a home they could afford and compete for,” said Petrich.
“Thanks to remote work, there has been a huge shift in homebuying demand to the farther-out, less expensive suburbs. It was very competitive before, but it has become much more intense now that people need more space,” he added.
Fairweather said remote work is driving new migratory patterns among homebuyers. Low supply of housing in destination migration cities like Las Vegas, Nevada and Phoenix, Arizona, is down by double-digits as well, forcing many homebuyers to privilege affordability in their decision making.
Redfin reported 28% of its users are looking at properties in the suburbs of cities such as Austin, Texas, Atlanta, Georgia, and Tampa, Florida. That represents a 9% year-over-year increase.
“People aren’t moving to places with more homes available to buy; they’re moving to places with more affordable homes to buy,” Fairweather said in a statement. “Remote workers leaving expensive places for relatively affordable areas, partly because the allure of more house for less money is strong, is exacerbating housing supply shortages in more affordable parts of the country.”
Interest Rate Relief
While the housing market is certainly benefitting the few who are selling their homes, Fairweather says future interest rate hikes could offer potential home buyers some relief.
In November, after then President-elect Joe Biden announced he would nominate Janet Yellen to lead the US Treasury, housing market analysts applauded.
Even though Yellen played an instrumental role in tightening restrictions on mortgage borrowing after the Great Recession as Chair of the federal Reserve, the same systemic housing-related issues she faced no longer exist.
According to an article by Housing Wire, a real estate news service, “credit standards are robust, banks and nonbank lenders have strong levels of liquidity, and delinquency rates are relatively low given the broader economic crisis.”
Yellen has voiced support for raising interest rates, which Fairweather anticipates would cool the searing-hot seller’s market. However, even that may not stop the market’s growth.
“There will continue to be a lack of new listings in early 2021,” Fairweather said. “But rock-bottom mortgage rates will have buyers eager to purchase the few listings that do hit the market. So I expect bidding wars, fast sales and double-digit price growth to continue.”