If you plan on selling or buying an investment property in 2021, there’s one question you will want to be answered: Will the 2021 US housing market be a seller’s market or buyer’s market?
Review the difference between a seller’s market and a buyer’s market in real estate.
Typically, there are a few factors that experts look at to make this kind of real estate market prediction. Of course, 2020 has been anything but typical. Now we have COVID-19 and the US presidential elections to take into consideration when making this kind of forecast.
Let’s dive into the most important factors that will impact the 2021 US housing market forecast to find out if sellers or buyers will have the upper hand in negotiations.
COVID-19 Created a Seller’s Market in 2020
When the coronavirus first hit the US real estate market 2020, most experts agreed that it would bring about a buyer’s market. This was due to the fact that home sales dropped drastically. At the same time, many sellers pulled listings off the market. So any sellers who remained in the market in March and early April were labeled as “motivated sellers.” It was a good time to invest in real estate as buyers did have the upper hand – briefly.
Fast forward to September and the real estate market data tells a different story. Here is an overview of the current housing market, according to Realtor.com:
- Median List Price: $350k, up 11% year over year (YoY)
- Days on Market: 54 Days, down 18% YoY
- Active Listings: 828,567, down 39% YoY
The takeaway from this market data? Prices are rising, homes for sale are flying off the market, and inventory is low and continuing to drop. The US real estate market is currently a seller’s market.
We actually started the year in a seller’s market but there’s no doubt that COVID-19 helped to keep the real estate market trends moving in that direction. The pandemic didn’t cause a permanent buyer’s market; rather, it just brought the market to a stand-still. Once economies opened up and fear subsided somewhat, that pent-up demand for homes exploded in the fall real estate market, contributing to a hot seller’s market.
And because there is currently no end in sight to the coronavirus, this impact it’s having on the US housing market is likely to continue into 2021.
Mortgage Rates Are Forecast to Remain Low
COVID-19 brought with it historically low mortgage rates as officials tried to offset the negative effects the pandemic had on the national economy. Low mortgage rates are responsible for driving demand and home sales in the second half of 2020.
For 2021, most experts agree that mortgage rates will remain low. In June, Fannie Mae released its mortgage rate forecast for the upcoming year. Their experts predicted that the annual average mortgage rate would reach 3.2% by the end of the year. By 2021, Fannie Mae’s US housing market forecast sees mortgage rates dropping to 2.9%.
If this comes to fruition, demand for homes for sale will continue to increase. High demand (combined with the other predictions in this article) is likely to lead to a seller’s market in 2021.
Keep in mind, however, that this mortgage rate forecast does not account for the fact that a COVID-19 vaccine may be introduced in 2021. If that happens, some experts say mortgage rates may actually rise. But until we come closer to a vaccine, predicting such a rise in mortgage rates and consequently, an all-out buyer’s market would be jumping the gun.
There Is No End in Sight for the National Housing Inventory Shortage
So far, US real estate market trends for 2021 point to an increase in home sales. At the same time, there is no clear evidence to date that the housing inventory shortage will be remedied to match or outpace the demand.
Housing development continues to lag across the nation. Although the US housing market did see a rise in homebuilding during May through July, data for August 2020 reveals a drop. The National Association of Homebuilders reported that the months of supply landed at 3.3 (another indication of a seller’s market).
With the supply of new and existing homes remaining low in Q4 2020, it’s unlikely a large enough shift will happen by 2021 with regards to inventory in order to change the direction of the real estate market.
US Home Price Gains Are In the Forecast for 2021
A buyer’s market is characterized by lower prices while a seller’s market comes with ever-rising prices. Many housing market experts agree that 2021 will bring with it house price appreciation. Turning to Zillow’s housing market forecast for US home values, property values will appreciate by 4.8% from now through August 2021.
The 2020 Elections May Push Buyer Demand Even Higher in 2021
The 2020 presidential election will likely cause a seller’s market in 2021.
The coronavirus is not the only thing that kept some buyers out of the US real estate market in 2020. A presidential election brings about a lot of uncertainty (Who will win? How will the results of the election affect prices, policies, and real estate taxes?). Because of this, some home buyers are sitting on the sidelines, waiting to see who their next president will be. It is a common trend that was witnessed in the US real estate market in past election years.
After an election, however, buyer confidence tends to rise again. And while new policies and such may come into play in the 2021 US housing market, it’s likely some of the pent-up demand will spill over into next year. This will aid in driving demand for homes for sale, along with some of the factors mentioned above.
Learn More: How the 2020 Election Will Affect the US Housing Market
Will 2021 Bring a Buyer’s Market or Seller’s Market? The Verdict
To sum up the 2021 US housing market forecast:
- Mortgage rates are likely to remain low
- Housing inventory will remain low
- Demand for real estate will rise due to a combination of factors
- Home prices will continue to see strong gains
All of this leads to one forecast: The 2021 US housing market will be a seller’s market.
Sellers are likely to have the upper hand when it comes to negotiating prices. Next year could be a great time for selling an investment property. But what if you wish to buy an investment property in 2021?
5 Tips for Buying Investment Property in the 2021 US Seller’s Market
When will it be a buyer’s market again? The forecast says: not any time soon. But a national seller’s market should not discourage anyone from entering the real estate market and buying an investment property.
First of all, keep in mind that this forecast is for the US as a whole. Many local markets are displaying different real estate market trends and may be buyer’s markets in 2021. That’s our first tip:
#1. Look for a Buyer’s Market
You can buy an investment property in a seller’s market. But because you, as a real estate investor, are not limited by location, you can find a buyer’s market to invest in. Here is a list of 10 Cool Buyer’s Markets to check out.
Related: How to Choose a Real Estate Market to Invest In
#2. Don’t Low Ball Your Offers
A seller’s market is no place to low ball offers. Conduct a comparative market analysis on any investment property for sale that interests you. Make a reasonable offer based on your findings.
#3. Work with a Real Estate Agent
A real estate agent can help you navigate a seller’s market. He/she can help you negotiate deals and guide you through making an offer.
#4. Conduct an ROI Analysis
No matter where you’re investing in real estate – whether it’s a seller’s market or buyer’s market – always conduct a return on investment analysis. You don’t want to pay an arm and a leg for investment property only to find out that it will bring a low ROI.
#5. Don’t Be Intimidated
Finally, don’t be intimidated by the 2021 forecast. While you may face some competition, you may also get to enjoy low investment property mortgage rates, appreciation, as well as cash flow during COVID-19.
If you’re not sure how or where to start your search for investment property for sale in a seller’s market, start with Mashvisor.
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