Who will emerge victorious as economic forces square off in the housing market of 2021?
Will it be the unstoppable force? Home sales exploded in 2020, spurred on by incredible demand born of the coronavirus shutdowns. Despite steadily rising mortgage rates, those sales show no sign of slowing down.
But will rising prices be the immovable object to thwart last year’s champion? What goes up, must go down, so they say. With post-coronavirus stimulus in the economy’s corner, does the current seller’s market have a puncher’s chance?
No one saw this coming. Not real estate agents, not lenders, and certainly not any of the media’s so-called experts. Let's take a look back to see where it all started.
In March of 2020, after a couple of months of news stories, a pandemic was declared, and the first round of lockdowns began. Home sales practically ground to a halt.
A few months later, demand exploded. All that time in one place with family put space – both indoor and outdoor – at a premium. Emotional influences ran high.
After plunging nearly 18% from March to April, sales of existing homes shot back up nearly 21% in June, according to the National Association of Realtors (NAR). Demand has continued almost unabated since.
With the supply of homes for sale already low, prices began to rise. With a lurching economy, mortgage interest rates set more than a dozen record lows.
However, with the latest financial stimulus passed, and employment and the overall economy coming back strong, rates are on an upward trajectory once again. What will be the overall effect? Many analysts believe the housing market is ripe for correction in 2021.
Prices have risen most at the low end of the market, where supply is leanest. Weaker affordability is the prime reason for a potential slowdown, especially for first timers.
But young buyers are finding a way. Americans between the age of 25 and 40 were the largest segment of buyers in 2020 – for the eighth straight year. They're tech-savvy and market wise. And the shutdowns left them with record personal savings too.
And repeat buyers have another down payment tool on their side. Home equity has never been higher. American homeowners gained a collective $1.5 trillion in value in 2020, an average of $26,300.
Even though interest rates have risen, they’re still historically low. The future of the market will also be determined by inflation, government debt, tax increases, the stock market and government policies.
No matter which way it goes, it’s almost certain to remain one of the most competitive housing markets in history. Grab your popcorn. It’s going to be something to see.