Predicting spring 2021: Will the market return to normal?
For years, the housing market followed a predictable, seasonal pattern.
Home shopping interest peaked in the spring, as homebuyers looked at homes they hoped to move into during the summer, so that they could be settled into their new neighborhoods and school districts by the time school started in the fall. When winter came, the market slowed down and got ready to repeat the cycle once again.
You know where we’re going next: “But in 2020, everything changed …”
As you recall, the first stay-at-home orders were put in place last March, and the real estate market came to a screeching halt right as it was getting ready to heat up for spring. And when the market came back to life a few months later, it sprang back like a slingshot, with record sales through the summer, fall and winter.
Now we’re back to the spring selling season, though we wouldn’t blame you if you haven’t noticed that it’s now 2021. Is this season going to keep surprising us, like much of the last 12 months? Or are we going to settle back into our accustomed seasonality?
We should learn our lesson from last year and avoid making any predictions, but there are trends that are beginning to appear that we think will continue this spring. And of course, please take all predictions with a grain of salt, as none of us know what surprises may be in store.
Rates staying low, but inching up
As news of the coronavirus started to come out at the beginning of 2020, mortgage rates began dropping. And as the effects of the pandemic played out across the globe, the Federal Reserve took action to help support the economy that resulted in some of the lowest rates in the last fifty years. Those low rates helped spur a lot of new home purchases last year, along with a tsunami of refinances.
The Federal Reserve is committed to keeping their benchmark rate low for a while to help juice the economy, which is good news for mortgage rates.
For much of the early part of 2021, average rates on a 30-year mortgage have been holding steady in the 2.75% range. They’ve been below 3% since around August of last year, but that doesn’t mean that they are going to stay below 3% forever.
With some sort of stimulus package from the federal government seeming more likely, along with the hope that comes with the vaccine rollout, there is optimism that the economy will slowly begin to rebound. Because of the optimistic economic outlook, many economists are predicting that rates could rise throughout the year, and that could start soon.1
Hopefully, you should still have time to take advantage of low rates this spring, but don’t wait too long and don’t expect them to go back down once they move up.
Low inventory, but new housing coming
As we’ve written about before, one of the biggest problems facing real estate is the lack of homes on the market. In the old adage about supply and demand, fewer homes for sale means lower supply and low mortgage rates drive up demand. That’s a perfect recipe to explain why home values are skyrocketing all across the country.
This has created a seller’s market for some time now, and that’s not going to change anytime soon. Expect bidding on available homes to be very competitive and familiarize yourself with the steps you can take to give yourself a leg up in a crowded market:
- Get pre-approved
- Get your gift funds in early
- Get ready to pull the trigger when you find the right home
Fortunately, builders are coming forward to help ease the burden. “Now, more than ever, people want more space. New construction on single-family homes could exceed 1 million (in 2021),” says Danushka Nanayakkara‑Skillington, associate vice president, forecasting and analysis, at the National Association of Home Builders (NAHB).
That would represent the most new home starts in a single year since 2007, and is set to be the beginning of a home-building blitz in the next few years. But it’s unlikely that any new construction will have an impact on your home search this spring, unless you’re willing to buy an unbuilt home now and wait for the home to be finished.
A great time to be a seller
While the trends that we see continuing don’t paint a rosy picture for those looking to buy a home, the good news is that it is a good time to sell. Here’s why.
Home prices keep rising
As we mentioned above, 2020 was a banner year for home value appreciation, as prices shot up by as much as 25%-30% in some metro areas at the end of last year. In fact, just this January we saw an increase in existing home prices of 14.1%, the 107th straight month of year-over-year gains.
Due to the lack of inventory, home prices will likely remain high through the spring. That makes now a great time to put your home on the market if you’ve been thinking about selling.
Millennials coming into the market hot
For the last decade or so, one trend that we’ve been keeping our eye on was Millennials’ hesitation to get into the real estate market. Burned by the 2008 recession that coincided with the bursting of the housing bubble, and also burdened by student loan debt, young professionals have been putting off buying their first home later and later.
Now they appear to be ready, with Millennials making up 37% of homebuyers2, according to the National Association of Realtors 2019 Home Buyers and sellers Generational Trends report. They are the largest generation in history and will have a major impact on the housing market for years to come.
Spurred into the housing market by last year’s low rates, this age group has already made their presence felt, and will continue to drive demand this spring. Expect many first-time homebuyers, but don’t expect them to be looking for traditional starter homes. Millennials have shown a willingness to make their first home larger and more expensive.2
Home sales expected to keep heading upward
The combination of low rates and the increase of homebuyers will likely push up home sales this spring.
“…For 2020 as a whole, we saw sales perform at their highest levels since 2006, despite the pandemic," said Lawrence Yun, NAR's chief economist, early in 2021. "What's even better is that this momentum is likely to carry into the new year, with more buyers expected to enter the market."
Other homebuying trends
The way we purchase homes has changed a lot in the last year. Some of those changes were due to the pandemic, but many changes had already started before the coronavirus reached out shores. The pandemic did accelerate them, however.
More and more online
This past year saw more and more of the homebuying process take place on devices and online. Homebuyers are finding listings online, connecting with agents through text and video conference, visiting a house through a video walkthrough and more.
Part of that was due to coronavirus and the fact that not a lot of business was handled in person. And part was due to the emergence of Millennial homebuyers and how they prefer to do business.
We expect this trend to continue this spring and for the foreseeable future. That’s why Proper Rate has made such a commitment to online and mobile friendly tools that make the whole homebuying process easier, and potentially safer, including FlashClose which allows you to spend less time at the closing table by signing most, if not all, of your closing documents virtually.‡
WFH isn’t going anywhere
While it’s too early to say if remote work is here for the long-haul or not, it’s clear that it’s on the minds of homebuyers now. This had been a rising trend for years, with nearly 25% of workers utilizing remote work flexibility before the pandemic in 2018. That number is higher now.
And we’re seeing that reflected in home listings, as an “office” is now mentioned in ~20%-33% of listings on Realtor.com in certain metro areas. This will continue to be a smart sales tactic through the spring.
A return to seasonality
Economists expect that the seasonal rhythms of the housing market will return as we get further away from the shakeup of last spring. With vaccines already being delivered and hope for in-person schools and businesses rising, the market forces that drive the seasonal nature of house hunting will click back in place.
Danielle Hale, chief economist for realtor.com, recently wrote, “We expect to see a strong spring and summer homebuying season, while things will wind down in fall and winter.”
Ready to warm up
This spring will likely represent the first shifts in the market back to something that feels like normal for many of us. But with low rates and low inventory, this will likely still be an extreme seller’s market, so prepare accordingly.
1 “Will mortgage rates go down in March 2021? Forecast and trends” The Mortgage Reports, February 18, 2021.
2 “How Millennials Are Changing the Housing Market” Investopedia, February 21, 2021.
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