Important Trends to Watch in 2021 for the U.S Real Estate Market

Seattle, WA. Source: Jason Dent

2020 was a year unlike any other. It was a year of intense and rapid change, where at the drop of a hat, the world was overwhelmed by a seemingly unbeatable challenge. But as we are heading toward the twilight of the pandemic, with optimistic estimates calling for a fully vaccinated America by May, we can begin to look to the future.

The real estate market had a year of ups and downs like never before in 2020, with some wild fluctuations stemming from the rapid social and economic shifts. To see what the future of the market may hold, we must look back at the past, and see what trends from 2020 will continue through 2021, and have a bearing on our future.

“…the most drastic effects that the pandemic had on the market were driving prices way up nationally, as well as a huge decrease in inventory.”

One of the factors that shows the impact the pandemic had on the real estate market is the rapid rise in homeownership rates, according to Finances Online. From Q3 of 2015 to Q3 of 2019, America’s homeownership rate increased a very marginal amount, growing 0.7%, from 63.4% to 64.1%. But from Q3 of 2019 to Q3 of 2020, that rate jumped 3.3%, to 67.4%. This is a very significant surge over a short period that shows how the pandemic impacted people’s desire to own a home, as well as their ability to make it happen.

One of the primary reasons that home sales were way up in 2020 was the historically low mortgage rate that was part of the Federal Reserve’s response to the pandemic. Lowered interest rates mean more money in the pockets of prospective homebuyers, and while home prices shot up rapidly in 2020, more people were willing to pull the trigger.

According to Realtor.com, two of the most drastic effects that the pandemic had on the market were driving prices way up nationally, as well as a huge decrease in inventory. The national housing inventory decreased by 48.6% throughout 2020, with another significant decrease in listed property.

Fewer people were listing their homes for sale in 2020, yet there was a massive increase in sales regardless. This leads to an increase in competition for sales, which then leads to an increase in prices. The median listing price nationwide surged 13.7% to $353,000, making the 2021 market an expensive one.

Other factors include the economic rebuild after Hurricane Irma which gave way to a stronger economy, rising wages, and Florida’s no tax status.

One of the biggest changes that 2020 brought that appears likely to carry over is the work from home trend. This has opened the playing field, giving buyers more opportunity to home-shop where they please.

This has led to sustained real estate growth in what experts call “second-tier cities”, as people move away from New York, Los Angeles, and San Francisco into less expensive cities. According to Finances Online, one survey indicated that 15-28% of large city residents indicated a desire to move out of their city. Experts say that this trend will likely shorten the chasm between the “tier one” and “tier two” cities’ real estate values.

2020 left the market in an interesting shape. It is a clear seller’s market, with home inventory low, prices sky high, and huge growth in demand. While the mortgage rates may go back to normal in 2021, which could stem buyer’s willing attitudes, it is likely in 2021 that the market will continue to surge. As people’s attitudes have changed in what they are looking for in a home, look for luxury real estate, and “tier two” cities to benefit from work from home and the other changes wrought by COVID-19.

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