To the surprise of many 2020 turned into a dynamic year for real estate. The pandemic started the year with everyone pondering what will happen with real Estate.
With hindsight, now being 2020 (sorry I had to go there), we have seen much demand for real estate due to remote work creating lifestyle changes. Record low rates also fueled opportunity for those fortunate enough to be able to maintain steady employment.
So, this of course all begs the question what will happen in 2021. The year has obviously started off with much fanfare so how will that translate into real estate and even financing for that matter. As I interact with numerous people, do much research, and evaluate many resources every year I have formed my thoughts for the year ahead.
Thoughts on 2021 Real Estate Market
· Migration: Many are predicted to keep fleeing high-cost living areas such as San Francisco and Los Angeles and relocating to lower cost cities such as Tampa and Atlanta. Suburban living is expected to grow in popularity. People continue seeking out jobs. This often results in the desire to live in the city where jobs are more plentiful. Meanwhile the new work from home opportunities will create a stronger desire for suburbs where land and housing are cheaper. This way people are closer to the jobs and yet away from the more populated inner city.
· Rental demand: is predicted to be very strong. Unemployed or recently unemployed will fill up low priced rentals as they rebound from financial difficulties. Migration will result in many renters who desire to learn an area before they purchase. That said, while demand is strong, the question is where supply will be as many investors are considering the fall out of eviction moratoriums that are predicted to continue through a larger part of 2021.
· Jobs: Many jobs may never be coming back and those that remain may be shifting to working from home. This will result in need for larger homes with more private areas of the house to separate yourself from the pets and other distractions from the heart of the home. Meanwhile the market should correct itself accordingly and new jobs, albeit different, are predicted to come through the year resulting in lower unemployment by years end maintaining strong and perhaps transient housing needs.
· Affordable housing: Will be in huge demand for both the desire to rent and the desire to buy. This will put upward pressure on pricing in the entry level housing sector.
· Prices: the strong demand for new housing and the large movement of peoples changing lifestyle will result in demand for housing. With supply continuing to be in tight supply housing prices will naturally follow supply and demand pressures. With a 50-year national average appreciation of 6 percent I would suggest that we shall be at least average and in many markets above average. As you know I often say real estate is local in nature. Keeping prices from going out of control in 2021 will be the rise in interest rates.
· Interest rates: The feds have given nods of rate increases probably due to much anticipated government spending. We have already seen some hikes in the last few weeks. While there may be some upward pressure on rates, they are still forecasted to remain low through most of the year.
· Lending standards: will surely tighten with further scrutiny in the wake of forbearance and moratorium on rent collection. Many who found comfort in these protections will find the past financial restraints will need to be cleaned up. Landlords and lenders will.
· New construction: Builder confidence has been strong with the large desire for new homes as existing inventory has been in tight supply. Add to this a demand for new construction rental housing and you have great optimism for builders. So, builders have a great year of building in store for them. As the builders continue to build more homes helping to ease the tight supply of existing home inventory, perhaps toward the end of the year we can start to see a more balance market heading our way.
· First time homebuyers: The age of 30 represents the age where most household formation occurs. Considering some of the largest groups of millennials are tuning 30 now, we can assume first time homebuyers will be very strong in 2021.
· Home Ownership rates: with positive net migration, and more people leaving large communal living type of resident’s, homeownership rates (which have been at an all-time low after the housing bubble) may actually rise above the 2005 lows.
· Housing types. Single family homes have been growing in popularity for both Owners and renters alike. With the pandemic, the desire for communal living has been diminishing. This increased demand for single family homes will continue to drive prices upward.
· Automation: online lenders will be more prominent with fewer personal contacts. Automation in property management rent collection and online bill pay will result in more cyber security threats as well so please be vigilant.
Summary:
2021 will be a strong year in real estate. Indeed, it will be a transition year with much movement in housing. While many unemployed people may move in with family members, a record numbers of millennials are about to add to household formation. Forbearance and rental collection moratoriums may end this year, causing a number of financial challenges for those who struggled to maintain employment. New construction optimism will result in many new houses being build which may suggest a more balanced market by years end. Interest rates will remain low but may tick upward.
As I always say, there is no such thing as a national real estate market. Some markets will be much stronger and more resilient than others, for those looking to invest you will want to watch for those emerging markets
The author’s opinion cannot be construed as tax or legal advice, and may not represent the views of HTBUSA or its stakeholders. HTBUSA is not a legal service or professional tax service. As with any investment, there is an inherent risk in investing in real estate..