Surprisingly, 2020’s residential real estate sales exceeded those in 2019. Moreover, many experts expect the trend to continue throughout 2021 and into 2022. However, what does that mean for you, the average person who has been saving up and considering buying a home? To understand the 2021 housing market and your potential place within it, you need to understand five factors that are driving the residential housing market.
Interest rates on 30-year fixed-rate mortgages are running between just 2 and 3 percent. It’s a distant cry from the 1980s peak rate of 18.5 percent in October of 1981. Financing for a home has never been so affordable. According to a HomeLight Top Agent Insights Report, the low-interest rates have prompted renters to buy sooner, homeowners to trade up sooner and older adults to downsize sooner.
Fewer established homes are on the market. While COVID has reduced the previous numbers of relocations and home turnovers, those who do want or need to buy are facing a market offering only 30 percent of the inventory available pre-COVID. Despite the National Association of Realtors (NAR) citing 20-percent increases in sales from 2019 to 2020 for new-construction homes, the increase in that same time frame for existing homes was a more modest 3 percent. Current NAR projections estimate existing home sales will increase by 9 percent in 2021.
While the increase in new-construction homes from 2019 to 2020 was about 20 percent, that figure increases by another projected 21 percent for 2021. What this means is that builders are selling what they’re building yet still can’t build enough, particularly entry-level homes. The construction industry cites a number of issues limiting its ability to build more homes, from zoning issues and lumber prices to supply chain challenges and the lack of skilled labor. Another driver is the lack of land to build on, sending developers and buyers farther out into the suburbs — a trend that remote working from home has encouraged and that is likely to continue.
With inventory tighter, potential buyers view any available home worth a look. The result has been multiple offers on desirable homes and bidding wars that escalate past original asking prices. New construction homes are often sold before they’re completed—in many cases, before they’re even begun.
In 2020, national realtor brokerage Redfin reported 40 percent of its clients’ offers on a home having to compete with multiple offers.
Multiple-offer percentages went as high as 58-75 percent in particularly hot metro markets.
Similarly, the National Association of Home Builders (NAHB) reported 30 percent of active homebuyers being outbid.
Most homes remain on the market less than a month, and according to HomeLight’s Top Agent Insights Survey, 46 percent—nearly half—of agents said that in 2020’s last quarter, bidding wars were on the rise. Agents anticipate the trend to continue and worry that sellers will in turn increase asking prices.
With home values rising, saving up a 20-percent down payment to avoid the additional costs of private mortgage insurance may be a stretch—especially for buyers looking in a destination area or an area attractive to investors. With remote work becoming a seemingly permanent reality, the number of people buying a second, vacation home that will allow them to work remotely while they’re there and rent it while they’re not has risen by 20 percent.
In 2020, the median age of first-time homebuyers was 33, and their median household income was $80,000. Meanwhile, for repeat buyers, the median household income was $106,700—significantly more buying power looking in potentially the same market.
Despite a worldwide pandemic—or perhaps because of the pandemic—the residential housing market is projected to remain strong throughout 2021. For would-be buyers, the task will be to act wisely and swiftly while resisting bidding wars and prices that threaten to exceed appraisal values.
If you’re ready to start looking, the first step is to have your prequalification letter from a respected financial lending institution in hand. Reach out to our mortgage specialists at La Capitol Federal Credit Union to get started on your journey to homeownership.