We left 2020 with our real estate inventory at a record low, mortgage prices plunging more than 13 times, foreclosures ticking upwards and more tenants than ever falling behind on their payments. But will trends largely remain the same or will real estate’s trajectory change following its ascension into the new year?
The National Association of Realtors launched a survey among 20 top U.S. Economic and Housing Experts which predicted that housing prices would see an increase of 8% in 2021. This is largely due to the lasting effects of the COVID-19 pandemic whose closures in 2020 were nothing like the 2010s, reducing the supply of inventory on the market from 10 months in the ’90s to just 2.4 months of supply, (meaning that it would take 2.4 months for buyers to purchase all of the current supply if all homes were to suddenly stop being listed). This is good news for sellers who can expect to earn higher profits from the low supply in housing inventory and demand higher than normal.
Stigma is one reason for the shortage in Real Estate with many homeowners not wanting strangers in their homes due to the risk of illness, and others delaying listing of their homes until circumstances settle down. But the main factor behind the drastic decline in supply is the record low interest rates driven by the FEDs reducing their federal funds’ rates to 0%. Interest rates fell by about 40% from 2019 to 2020 with the Federal Reserve expressing their intention of leaving it unchanged in 2021, thus continuing this trend.
According to a Forbes Article, President of Patten Title’s Eric Fontanot, like most, expects to see prices continue to climb. Besides the supply and demand disequilibrium, this is also going to be driven by people who tried to buy Real Estate last year, but couldn’t, and are therefore very likely to try again this 2021.
But not everyone believes that markets, in general, will flourish in the next year, most notably Michael Strain, who calls his theory of the letter ‘k’ representing the type of recovery the market will follow the “k-shaped recovery.” The diverging lines in the letter K indicate different outcomes for different sectors, with the upper line signaling some sectors thriving while in the bottom line, people losing their incomes.
Naturally, the K-Shaped Recovery is going to hit low-income homeowners the hardest and trigger a ripple of foreclosures. This is because the provision in the Cares Act temporarily freezing foreclosures ends this year. According to Strain, because 10% of 8 million single-family mortgages backed by the FHA are delinquent by 3 or more months, more than 800,000 homes will potentially be foreclosed this year. The net effect of foreclosures is likely to add downward pressure on housing prices as it increases inventory for a price significantly lower than its standard market one, without adding much more demand, thereby slowing the rate of inflation on real estate in 2021.
The bottom line is that it is impossible to predict Real Estate Trends completely accurately. And while these trends are likely going to continue well into the new year until interest rates either rise to reduce demand, the cost of materials drop to increase supply, or restrictions begin to ease to create more properties, a continuous increase in price is absolutely unsustainable and will eventually come to an end. But for now, while the real estate market currently favors some more than others, it is incredibly unlikely that it’ll collapse in the next year. With that being said, get ready. 2021 is going to be another wild year for real estate.
Davidson, Paul. “Housing Development in Raeford, N.C.” USAToday, USAToday, www.google.com/url?sa=i.
Richardson, Brenda. “Experts Predict What The Housing Market Will Be Like In 2021.” Forbes, Forbes Magazine, 18 Dec. 2020, www.forbes.com/sites/brendarichardson/2020/12/16/experts-predict-what-the-housing-market-will-be-like-in-2021/?sh=717e2f6636dc.
Stephan, Graham. “The Upcoming 2021 Real Estate Collapse Explained.” YouTube, YouTube, 16 Dec. 2020, www.youtube.com/watch?v=k6XhHsyAk3s.