The real estate market is cyclical and can be influenced by many factors. Historically low interest rates and the coronavirus were two factors that impacted the 2020 real estate market. The 2021 real estate market is predicated to be influenced by some additional factors. Home values are currently still increasing because of the low interest rates and low inventory. However, 2021 brings about some changes and additional factors which will, most likely, change the market.
The recession in 2020 was different than the last recession that started in 2008. The last recession was "caused by" the real estate industry. At the end of 2020 and in 2021, real estate is the driving factor in getting the country out of the current recession.
The Election is Over
The 2020 election year was quite a show. The country divided on many issues and there was quite a lot of dissention. While the 2020 real estate market remained strong, the election did contribute to some peoples' decisions on whether or not they were going to buy or sell a home. According to an article in keepingcurrentmatters.com, a research company, BTIG, studied home sales from 1963 to 2019. They noticed an average decline in November compared to October. They also discovered that the decline was higher in election years, dropping as much as 15% from October to November. In 2020, however, the sales only dropped 2.5% from October to November.
Now that the coronavirus vaccines are rolling out, consumer confidence should increase. On January 21, 2021 the Center For Disease Control (CDC) reported that only 17.5 million people, about half a percent of the United State's population, have received the vaccine. President Joe Biden has a plan to vaccinate 100 million people in 100 days. This promising plan should bring more sellers and buyers to the real estate market.
New Home Starts
New home starts are expected to increase this year, compared to last year, because of consumer confidence. Starts were up in 2020 to 1.38 million. A 7% increase over the prior year according to the U.S. Census Bureau. According to Kiplinger's latest forecast, new home starts "will start 2021 on solid footing."
The Makeup of Buyers
The makeup of homebuyers in 2021 will be a bit different than in 2020. Many homebuyers in 2020 were a result of pent up demand. The inventory was low going into 2020. Then the coronavirus hit and it became worse. Many of these homebuyers were able to purchase a home in the second half of 2020.
In 2021, there is more inventory expected to hit the market. There are also more first-time homebuyers expected as more millennials settle down and purchase homes. With the interest rates predicted to continue to be low this year, more investors will come to the market because borrowing money is inexpensive. Real estate is a great way to diversify your portfolio. Also, according to Forbes.com, there will be more people retiring earlier this year due to the pandemic. These retirees will be downsizing to the popular retirement states around the country such as the Carolinas, Colorado, Arizona, Texas, Tennessee and Florida.
Overall, 2021 should be a strong year for real estate. Home values should stabilize a bit as the inventory increases and more buyers are able to purchase homes. Housingwire.com predicts that home prices will still rise in 2021, "but at a smaller pace than we saw in 2020." Freddie Mac estimates prices to rise at 2.6%, versus the 5.5% rise in 2020.