2021 National Housing Market Forecast and Predictions: Back to Normal
To say 2020 was a year of surprises is an extreme understatement. What started off as a bright year for the housing market and the economy was soon derailed by a global pandemic and severe economic recession. As detailed by my colleague, George Ratiu, the economic rebound has been sharp, but is by no means complete and created distinct winners and losers among sectors in the economy. Read more detailed thoughts on the overall economic context and outlook, here. One of the big winners has been the housing market, which saw home sales and prices hit decade-plus highs following decade lows in the span of just a few months. We expect housing’s winning streak to continue in 2021 as seasonal trends normalize and some of the frenzied momentum fades thanks to fresh affordability challenges. Below you’ll find our forecast and housing market predictions on key trends that will shape the year ahead.
Realtor.com 2021 Forecast for Key Housing Indicators
|Housing Indicator||Realtor.com 2021 Forecast|
|Mortgage Rates||Average 3.2% throughout the year, 3.4% by end of year|
|Existing Home Median Sales Price Appreciation||Up 5.7%|
|Existing Home Sales||Up 7.0%|
|Single-Family Home Housing Starts||Up 9%|
The COVID-19 pandemic hampered home sales contracts in April, but that will likely mark the low point in pending home sales for the year, according to the National Association of REALTORS®’ latest housing report released on Thursday. April was the second consecutive month of declining pending home sales, as social distancing measures and widespread business closures mounted due to the igniting coronavirus outbreak. Every major region of the country saw a drop in month-over-month contract activity in April.
NAR’s Pending Home Sales Index—a forward-looking indicator of home sales based on contract signings—fell 21.8% in April. Contract signings were 33.8% down for the year. April’s decline also marked the greatest decrease in pending home sales since NAR began tracking such data in January 2001.
“With nearly all states under stay-at-home in April, it is no surprise to see the markedly reduced activity in signing contracts for home purchases,” says Lawrence Yun, NAR’s chief economist.
Yun expects April’s pending home sales to be the lowest point for the year, and the month of May to, therefore, be the lowest point for closed sales. He then predicts a rebound in the housing market in the summer months.
“While the coronavirus mitigation efforts have disrupted contract signings, the real estate industry is ‘hot’ in affordable price points with the wide prevalence of bidding wars for the limited inventory,” Yun says. “In the coming months, buying activity will rise as states reopen and more consumers feel comfortable about home buying in the midst of the social distancing measures.”
More reason behind housing’s optimism: Mortgage applications have been rising over the last few weeks, a gauge used to measure future home sales.
Owners typically stay fewer years in their homes in metro areas with a high concentration of new residents, a NAR analysis shows.
As of 2018, the median duration of homeownership in the U.S. is 13 years1. Compared to previous years, homeowners opt to spend more time holding onto their residences. Median tenure has increased by 3 years since 2008.
Nevertheless, homeownership duration varies from area to area. Homeowners in some metro areas move more frequently than homeowners in the rest of the country. To begin our analysis, we looked at the median years of residence for owner-occupied homes located in the 100 largest U.S. metro areas. The American Community Survey provides estimates about the median year that owners moved into their homes. As data shows, homeownership duration varies from 6 to 18 years in the 100 largest metro areas. In more than half of these metro areas, homeowners spend less time holding onto their primary residences than the typical homeowner across the country.
Specifically, homeowners in the following areas typically stay up to 8 years in their homes:
In contrast, the following metro areas had a median homeownership duration of 16 years and higher:
As the data shows, many of the fastest-growing metro areas had the lowest median tenures. For instance, in Austin-Round Rock, TX, owners typically stay for 8 years in their homes while 18 percent of the total population moved within the last 12 months in 2018. Respectively, in Colorado Springs, CO the median homeownership duration was 8 years while the share of recent movers was 21 percent.
In contrast, in New York-Newark-Jersey City, NY-NJ-PA where fewer people moved recently (9%), the typical homeowner stayed for 15 years. Similarly, the median homeownership duration was 15 years in Los Angeles-Long Beach-Anaheim, CA while 9 percent of the total population moved within the last 12 months.
Housing supply shortage and low affordability are two of the main reasons that people stay longer in their homes. Firstly, the number of building permits for single-family homes issued in 2018 compared to a year earlier was lower in the metro areas with median homeownership duration above 13 years. While there are fewer inventory options, sellers in these areas may find it harder to find and purchase their next homes. Thus, they stay longer in their homes and fewer homes are available for first-time homebuyers. On the contrary, permits increased by 4% in the metro areas where homeowners stay less than 13 years in their homes.
Moreover, housing is more expensive in the areas with the highest median tenures. Although short supply increases the seller’s profit, it also difficult for these sellers to afford to purchase their next homes. As data reveals, the median home price of recently purchased homes was 10 percent higher in the areas with a median homeownership duration above 13 years compared to other metro areas.
Homeowners staying longer in their homes can further reduce the number of homes for sale. Homeowners will likely be further locked in place because it is difficult to sell and buy a home at the same time. That being said, finding ways to build more housing will help, but the ultimate goal is to increase the number of existing homes available on the market. This can only happen if these existing owners’ homes go on the market.
However, metro areas with smaller homeownership duration are expected to have a boost of housing activity in the upcoming years. Since these areas have more homes available for first-time homebuyers than other metro areas, more newcomers will likely arrive. As first-time homebuyers become a greater proportion of all homeowners, the median homeownership duration will fall further in these areas.
Hover over the map to see how long owners of different metro areas opt to stay in their homes.
- In green metro areas, homeowners spend less time holding onto their residences compared to nationwide
- In grey metro areas, homeowners spend 13 years
- In orange metro areas, homeowners spend more time holding onto their residences compared to nationwide
- The National Association of REALTORS® surveyed their members for the release of their Confidence Index.
- The REALTORS® Confidence Index is a key indicator of housing market strength based on a monthly survey sent to over 50,000 real estate practitioners. Practitioners are asked about their expectations for home sales, prices, and market conditions.
- Homes across the country are selling quickly, in an average of just 31 days.
- 49% of homes sold in less than a month.
- Buyers are active in the market and often competing with one another for available listings.
- Housing inventory is still under the 6-month supply found in a normal housing market.
- Homes are still selling relatively quickly, averaging 31 days on the market.
Why inventory has been shrinking.
- Existing Home Sales dropped 1.7% from May to a seasonally adjusted annual rate of 5.27 million in June.
- Low inventory levels are still a factor in the market. The current supply of homes for sale is at 4.4 months, which is less than the optimal 6-month supply.
- Median home prices were up 4.3% from June 2018, hitting $285,700. This marked the 88thconsecutive month with year-over-year price gains.