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What housing market predictions are experts making for 2021? 

The last year has presented unique challenges to homebuyers and sellers, real estate agents, mortgage bankers and housing experts alike. Some of the biggest trends in the market have included historically low inventory and low interest rates coupled with a robust housing market and strong buyer demand, despite the uncertainty of a global pandemic. 

So what can we expect from the housing market this year? These are the four big predictions housing market experts are making for 2021. 

1. Interest rates will slowly start to rise.

Interest rates hit historic lows in 2020 which made homeownership more accessible than ever for buyers, especially first-time buyers. Experts at groups such as Fannie Mae and Freddie Mac are predicting that interest rates on the 30-year fixed mortgage will start to rise in 2021. Other groups, like the Mortgage Bankers Association and the National Association of REALTORS®, are also predicting that interest rates will rise from an average of 2.92% to an average of 3.17% by the first quarter of 2022. 

housing market predictions
Source: February 2021 Market Report from Keeping Current Matters.
housing market predictions
Source: February 2021 Market Report from Keeping Current Matters.

These predictions are causing real estate agents to ask if this slow, but steady, rise in interest rates will affect the strong (and still growing) demand from homebuyers. Experts say: it shouldn’t! 

In fact, Mark Fleming, the Chief Economist at First American, said, “Rising interest rates reduce house-buying power and affordability…but are often a sign of a strong economy, which increases home buyer demand. By any historic standard, today’s mortgage rates remain historically low and will continue to boost house-buying power and keep purchase demand robust.”

Slowly rising interest rates are traditionally a sign of an economy growing stronger, which should make would-be home buyers optimistic about the housing market and opportunities within it. The chance to buy a home before interest rates start to increase provides a great opportunity for potential homebuyers who are on the fence about purchasing a home this year. 

2. Potential sellers will feel more comfortable listing their homes this year.

More experts are predicting an increase in listings this year. Sellers who previously were hesitant to list their homes due to the economy, pandemic and general uncertainty about the future will feel more comfortable putting their homes on the market this year due to a number of reasons. 

Source: February 2021 Market Report from Keeping Current Matters.

Sellers will feel more optimistic about the future. 

Optimism is growing among sellers as COVID-19 vaccinations are distributed, the economy is expected to stabilize and grow, and life begins to feel more certain. According to Keeping Current Matters, forecasters are predicting that agents will sell 5% more homes in 2021 than in 2020. 

People will still need space as they work from home.

Work-from-home will continue to be the norm for many workers, even as COVID-19 anxieties begin to abate. The National Association of REALTORS® previously estimated that 6% of the workforce was work-from-home in 2019. This increased to 21% in 2020 and is expected to be at 18% in 2021 and 12% in 2022. Working from home will continue to be a way of life for many homeowners which means they will need the space to live where they work. 

Last year we saw a significant wave of homeowners leaving densely populated cities and suburbs for more open areas where they could buy a home with land, a home office, and space to comfortably live with family. There are still homeowners who would like to move because they need or want something different for their home but didn’t because of the pandemic. This year is the perfect time for potential sellers to make the moves they’ve been dreaming about. 

New construction will continue to grow. 

Many homebuyers saw new construction as a solution to the housing shortage and the precautions created by the COVID-19 pandemic. Joel Kahn, Head of Economic and Industry at the Mortgage Bankers Association, said “New home sales activity, both mortgage applications and home sales, ran at a pace considerably ahead of 2019, showing the ongoing strong growth in housing demand, and new residential construction.”

According to Keeping Current Matters, many builders and developers are reportedly confident in their ability to meet homebuyer needs this year, despite some delays in supply brought about by the pandemic and increased demand. 

3. Homeowners are coming out of forbearance.

As we come into the 2021 housing market, many homeowners were in forbearance in 2020 due to unemployment and unexpected financial hardship as a result of the pandemic. The Mortgage Bankers Association compiled current data from June 1, 2020, to January 24, 2021, to show where many homeowners are now after seven months of forbearance.   

housing market predictions
Source: February 2021 Market Report from Keeping Current Matters.

About 51.7% of homeowners who were in forbearance are now caught up. They either continued to make payments, repaid past due payments or paid off their loan entirely through a refinance or by selling their home. 

Almost 33% of homeowners in forbearance worked out a repayment plan with their lenders. They either added missed payments to the end of their loan and extended the term or are working on a refinance. 

An estimated 15.3% of homeowners are delinquent on their home loans and will turn to a short sale or some other method of settling their home loan. These homeowners are at risk of foreclosure but experts are saying we should not expect a housing crisis due to an increase in foreclosures. 

Homeowners in “distress” will need assistance navigating the real estate market as they sell their homes to cover their loans. The good news is, home values have steadily increased over the last several years and are expected to rise another 3-5% this year. Homeowners who are in “distress”, or who have repaid their loans and are ready to move, can realize their equity by selling their home, paying off the mortgage and making some money. 

Lawrence Yun, the Chief Economist and Senior Vice President of Research at the National Association of REALTORS®, said, “Given the huge price gains recently, I don’t think many homes will have to go into foreclosure. I think homes will be just sold and there will be cash left over from the sale or even in a distress situation.”

This will be a solution for many homeowners and will also help bring some inventory back to the market in 2021. 

4. Housing affordability will continue to rise. 

Many housing market experts use the National Association of REALTORS®’ (NAR) Housing Affordability Index to measure the market. According to NAR, the index measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national and regional levels based on the most recent price and income data. The higher the number, the more affordable homes are considered to be.

Source: February 2021 Market Report from Keeping Current Matters.

When experts refer to home affordability, they are considering the percentage of income that is required to make a mortgage payment. Right now, it’s at a historic low of 14.9%. Adjusted for inflation, the typical mortgage payment for many homeowners is at $826. This is down from $878 in 2020 and $962 in 2019.

housing market predictions
Source: February 2021 Market Report from Keeping Current Matters.

Experts also consider the affordability of renting versus owning in big markets. When you include the value of equity, especially as home values continue to appreciate, owning made more financial sense than renting in 48 out of the top 50 markets in the country, excluding San Francisco and San Jose, according to Keeping Current Matters. 

Although home prices are climbing as home values appreciate, it’s important to remember that home affordability is not the same as affordable housing. There are markets with a shortage of housing considered to be affordable. But the index measures the affordability of a mortgage payment for most people based on average income and other economic factors. 

Potential home buyers and sellers will have a lot of opportunities this year to realize their goals of buying and selling. Although interest rates are expected to slowly rise, housing affordability and equity will also continue to increase. More sellers are expected to list their homes as their optimism and confidence in the economy grows and even those homeowners in mortgage “distress” should be able to realize the equity they have in their homes. 

Interested in more housing market predictions for 2021? Learn more about the inventory shortage the market faces and how we expect to see it return with our real estate market report, The 3 Ways Housing Inventory Could Return in 2021.