What will the US housing market 2021 look like? Will house prices go down? Is another housing market crash coming? These are the questions that almost every homebuyer, seller, and real estate investor are asking right now.
Although some expected home prices to drop in 2020 due to COVID-19, this year has defied the most pessimistic expectations about the real estate market with unexpected growth. Let’s look at the current house price trends and from them, we can make our real estate market forecast for 2021.
Current Housing Market Trends in 2020
The current situation in the US housing market can be summed up as better than predicted and quite competitive. Even amid economic uncertainty, those who can afford to buy property are doing so now.
Demand is high and rising
Lockdowns and the uncertainty around the presidential elections put brakes on many people’s plans for moving to a new home earlier this year. As those events pass, many impatient buyers are making a move, and demand has been rising steadily. Redfin reports that the number of homes sold has risen by 22.6% since last year. The steeply falling median days on market (down 16 days YoY) shows a huge spike in demand and competition among buyers.
Related: How the 2020 Election Will Affect the US Housing Market
Historically low mortgage rates and a shift in homeowners’ needs drive this unexpectedly high demand. More people want a yard or at least a balcony; extra space for a home office or online schooling of kids. Suburbs and smaller towns are hot markets because they can offer more square footage or quick access to nature in case of another lockdown. People felt trapped in homes not big enough and now want to quickly move to avoid it happening again. Realtors are now expecting to start 2021 strong, turning winter into an unusually active home sales season.
Housing inventory is at a historic low
To understand current house price trends, we need to look at supply vs demand.
We started the year with a housing inventory shortage. And COVID-19 and the election caused many potential sellers to keep their properties off the market, further driving down the number of homes for sale. Despite the rise in virtual open houses, some people still feel uneasy about meeting for negotiations or going house hunting for a new home.
This has left the housing supply very low at 1.5 months of inventory available when 6 months of inventory are needed to strike balance on the market. The total number of homes for sale has fallen by 36.4% YoY, according to Redfin data.
It’s a seller’s market
High demand coupled with low supply is a recipe for a seller’s market. Sellers are likely receiving multiple offers in many areas across the US housing market, driving house prices up and giving sellers the upper hand when choosing among offers. Redfin reports that 34.7% of homes are sold above the list price.
Home prices are up year over year
As a result of the previously mentioned trends, house prices are actually up right now, 14.2% YoY. Neither COVID-19 nor the economic uncertainty it brought about has been able to pull home prices down in most areas across the nation.
So what does this mean for house prices in 2021? Let’s take a look.
US Housing Market Predictions: 2021 Home Prices
Overall, housing market predictions are optimistic for 2021 when it comes to price appreciation. Zillow reports a 7.9% YoY increase from now through October of next year. The states with the biggest expected increase in house prices YoY are Arizona, Idaho, and Washington – all by 8.2%, according to Zillow predictions. On the other end of the spectrum are Alaska (only 3.9% up), North Dakota (5.5% up), and Hawaii (5.6% up).
Although not many experts believe that home prices will go down in 2021, some do see a slow down in price growth. This slowing down of growth is expected because of a few reasons:
- As available inventory is tight and quickly gets sold out, the remaining buyers who cannot afford above-list prices will be priced out of the market. This will mean that house prices will stop growing so fast because the market will calm down.
- After the elections, supply might increase a bit, giving buyers a few more options to choose from.
- If there are no more federal assistance plans and regulated forbearance options as provided by the CARES Act, a lot of homeowners might default on their mortgages. This could flood the market with foreclosures.
- Rising unemployment due to the coronavirus crisis can also slow down the housing market but its effect will come later in 2021.
Related: Will There Be a US Foreclosure Crisis in 2020?
Is a housing market crash expected?
No, a housing market crash is not likely to happen. Experts expect just flattening of the growth curve but still expect prices to remain high. Most of the problems in housing finance that led to the big crash in 2008 are non-existent right now. It is also likely that low mortgage rates will be available at least a bit longer, taking some financial burden off of borrowers.
Related: No US Housing Bubble Crash in Sight, Expert Says
To Sum Up
So the experts’ answer to the question “Will house prices go down in 2021?” is no. They may stop growing at the pace they have been this past year, but stay at a high not seen since before the Great Recession.
Sellers can make the best of it now while the hype lasts. Explore your local housing market and list your property on the Mashvisor Property Marketplace!
Buyers might decide to wait a bit longer to see if a fresh supply of properties will hit the market. But a drop in house prices of higher-end, single-family homes with yards – the most wanted type of real estate right now – is not likely. All data suggests that sitting on your money if you are in the market for a house is not worth it – you will probably not get a better deal later in 2021. Start searching for investment properties for sale in the location of your choice with Mashvisor’s Property Finder now!