‘Is it a good time to buy a house?’ ‘Is it a seller’s market or a buyer’s market?’ These are common questions being asked by real estate investors in 2021. With the effects of the coronavirus pandemic still being felt all over the world, people are skeptical about investing in real estate. In fact, many 2021 housing market predictions forecast a repeat of the 2008 housing market crash.
However, the good news is that we are not in a housing bubble. In fact, the current housing market has been booming in the midst of the COVID-19 crisis. So, what is the current condition of the US housing market in 2021? In a nutshell, demand has reached record highs, housing prices have spiked and supply has decreased significantly. In fact, recent housing market news features from The Wall Street Journal report that 5.5 million more units are needed to meet the demand in the US housing market.
Housing market predictions show that the real estate market will continue booming in the coming months. Here are some of the current housing market trends that could benefit investors in 2021:
Low Interest Rate
Low interest rates are expected during the current housing market
The US economy and financial markets were hit hard by COVID-19. Many businesses were forced to shut down and millions of jobs were lost in the process. In an attempt to stimulate economic growth, the US federal government lowered interest rates to near zero in 2020. With the Fed still committed to keeping interest rates low, it is good news for real estate investors. These mortgage rate trends have made it easier for Americans to borrow money for big purchases like buying a home. Also, investors have the option of refinancing existing debt in order to benefit from lower rates. A mortgage interest rate forecast by Business Insider shows that interest rates are likely to remain low in the coming months.
After examining data from the World Population Review and Zillow, HomeiA listed the following as the most affordable states to buy a home in the current housing market:
- Mississippi
- West Virginia
- Oklahoma
- Iowa
- Kentucky
- Kansas
- Ohio
- Alabama
- Indiana
Related: What 0% Interest Rate Means for Mortgage Rates
Housing Unaffordability
Most American households still cannot afford to own a home. According to Howmuch.net, Vermont is one of the least affordable states in the US, with only 16% of the population able to afford a mortgage payment. Here are other top US states where the least number of households can afford a new house:
- Wyoming
- Connecticut
- New Hampshire
- Oregon
- Maine
- Washington D.C.
- Washington
- New York
The high rate of unaffordability means that the demand for rentals remains high in the current housing market. Statista reports that there were about 43 million housing units occupied by tenants in 2020. Real estate investors can take advantage of this trend by investing in traditional and Airbnb rentals, especially in areas with a high rate of unaffordability.
Decreasing Housing Inventory
COVID-related stay-at-home orders and lockdowns slowed construction and delayed land purchases in many regions. At the same time, many homeowners canceled or delayed plans to list their homes for sale. As a result, the houses for sale on the market dropped drastically. According to a Redfin report, the number of homes available for sale in April 2021 was $681,348, a massive 48.3% year-over-year drop. The report further shows that the median days-on-market for listed homes is 19 days. With a mere 1.1 months of supply, it means that there aren’t enough properties for sale to meet buyer demand. The same report reveals that year-over-year housing demand increased by 20.7%. When inventory is low and demand is high, home prices and rental rates will continue to rise. Real estate investors can therefore make a good return on investment in the current housing market.
Related: How to Find Deals When Housing Inventory Is Low
Increasing Home Prices
In April 2021, the median sale price of homes in the US housing market was $370,528, representing a 22.2% year-over-year increase. The increase in home prices was driven by low interest rates, low housing inventory, and high demand. The total number of home sales in the same month was 608,883, a 32.8% year-over-year increase.
Many experts predict that home prices will continue rising in the current housing market. For example, a recent Reuters survey involving top housing analysts suggested that home values would go up by 10.6% in 2021. Rising home prices in the current housing market are nothing but good news for real estate investors. It means that you can charge higher rental rates and eventually sell the home at a good profit.
Delinquency and Foreclosures
Due to the economic impact of COVID-19, many homeowners were unable to keep up with their mortgage payments. As a result, the US federal government issued a foreclosure moratorium on March 18th, 2020. This moratorium protects 28 million homeowners that have federally-backed mortgages like Freddie Mac and Fannie Mae. Mortgage lenders are not allowed to foreclose on these properties during the forbearance period.
Recently, the Biden administration announced an extension of the moratorium through June 2021. When the forbearance eventually ends, it is expected that a flood of foreclosed homes will hit the US housing market. A report by ATTOM Data Solutions reveals that up to 500,000 homeowners in the US could face foreclosure in 2021. States expected to experience the highest rate of foreclosure include Massachusetts, Colorado, and California.
While this is bad news for homeowners in the current housing market, it is good news for savvy real estate investors. Since mortgage lenders are eager to get rid of foreclosures, you can buy such properties for up to 50% below market value. If the property is distressed, you can renovate it to increase its value and even charge higher rental rates. In addition, buying foreclosures is less competitive compared to buying regularly listed properties. The process of purchasing a foreclosure is also much faster.
Here are some of the states with the highest foreclosure rates in 2021:
- Delaware
- Nevada
- Illinois
- Indiana
- Ohio
- Florida
- New Jersey
- Louisiana
- California
- South Carolina
Related: How to Analyze Foreclosures for Sale for Investment
Rise of Staycations
Due to coronavirus-related travel restrictions, many Americans are now staying close to home. Out-of-state vacations have now been replaced by staycations. People are visiting surrounding areas for a comfortable, safe escape from their day-to-day routine. As a result, local travelers are now filling the void left by tourists from out of state. In a recent report about travel trends in the current housing market, Airbnb CEO Brian Chesky said the following:
“People don’t generally miss landmarks, crowded shuttles, and lines and lobbies packed with tourists,” he added. “What people want from travel now is what they’ve been deprived of — spending meaningful time with their family and friends.”
This change in travel trends means booming business for owners of vacation homes. The Airbnb report revealed that 56% of people prefer a local or domestic destination, compared to 21% who are interested in visiting international destinations. One out of five people wants to visit a destination that is within driving distance of their home. Remote learning and working have also given people more freedom to decide when to travel. 25% of Americans are open to the idea of traveling during off-peak times of the week or year.
Conclusion
Is it a good time to buy a house? All the real estate trends and 2021 predictions listed above show that this is indeed a good time to purchase property. However, be sure to do your due diligence before investing in the current housing market. To choose the right neighborhood and income property for sale, use Mashvisor real estate investment tools, namely the real estate heatmap, property marketplace, and investment property calculator.
To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.