The housing market predictions have been greatly affected by economic uncertainty, controversial political elections, and the fast spread of the pandemic. The combination of these left economists and landowners forecast what could possibly happen after the rollercoaster year we’re about to end.
In this article, let’s take a look at what to expect in the real estate market in 2021.
Why Does the Real Estate Prices Increase?
The Top Economic and Housing Experts predicted that 8.0% of housing prices are expected to climb in 2021 alone while fixed mortgages would increase to a 3.0% rate.
As a buyer, this may not be good news for you. But if you’re the seller or real estate owner, it’s unlikely the opposite. But why do the real estate prices keep increasing? Here are some of the reasons why.
Low Inventory
This seems to be the most noticeable reason for the real estate price hike. There are few available homes or inventory in the market. Of course, if there are fewer homes, there are fewer chances for buyers to pay for a property.
The inventory is typically calculated by ‘Months Supply Inventory’ which scans the real estate market’s sales volume, the number of homes in the market, and how long it will take for these homes to be bought.
But in today’s uncertainty, the low inventory rate may be caused by a decision made by the homeowners to stay where they are, not risking their safety for strangers, or chose to delay their listing until events have cooled off a bit.
Whatever the reason is, the demand for real estate is low high while the inventory holds out.
Low-Interest Rates
Over the past few years, it seems like a brand new record of interest keeps on popping from the local newspapers.
Rates have now dropped to 2.71% on a standard fixed-rate mortgage compared to 2019’s 3.7% rate which is equivalent to 40% higher than we’re seeing today.
If we were to calculate both percentages to a 300,000 mortgage, homebuyers can keep an extra $250 a month for 30 years. For this reason, homebuyers demand has increased to a brand new record high.
About 51% of homebuyers say it’s a good time to buy a property due to the extremely low mortgage rates. For this reason, it’s no surprise that more people demand more houses remaining less to the market.
But you might think, “Why can just real estate owners just build more homes?” Although this makes sense, There are few roadblocks to that.
First, the Strict Building Code makes it nearly impossible to build new and affordable housing. Second, Building materials have significantly increased over the years.
These two are going to be added to the final price of your finished product which made Economists believe the same thing is going to happen in 2021.
Why Makes Us Think That Real Estate Market Prices Will Go Down?
There’s a lot of reason why real estate market prices might increase. At the same time, here’s a positive light to take note of especially in the eyes of buyers.
Foreclosure Waves
At the beginning of 2020, there are few signals that show what type of recovery could possibly happen in the real estate market. One of these signals includes the V-shaped recovery which means that for a certain period, the market will go down but will shoot straight right up.
But according to an economist, Michael Strain, a K-shaped signal will prevail in the market this year. This signal shows that some sectors can see that their income and wealth can skyrocket like that of the upper line of the letter ‘K’ while other sectors can see themselves at the bottom line of the letter.
We can take huge companies like Amazon and Spotify as an example of the former while retail, oil companies, and the real estate market as the latter’s example. These companies might even get shut down.
Unfortunately, this might hit low-income sectors the hardest which is why we’re going to see a wave of foreclosures. The only reason we’re not seeing it yet is because of the provisions in the CARES act that temporarily freezes foreclosures until 2021.
The rollover from this year may tap off the balance between the low and high prices within the real estate market which causes the market to slow down.
But as the market becomes low in inventory with low-interest rates, and high demand, it becomes a perfect storm for real estate prices to go up abnormally higher.
In the end, 2021 is predicted to be ‘almost the same’ as the current situation we’re in. What about in your area, how is the real estate market going on?
