The housing market will remain strong through 2021 as the economy recovers from the pandemic-driven recession. In early 2021, homebuyers will remain undeterred by the pandemic, eager to take advantage of sub-3% mortgage rates while they last. Later in the year, the worst of the pandemic will hopefully be behind us, and as businesses reopen and daily activities become safer, a new batch of homebuyers and sellers will enter the housing market, making for the strongest year of home sales since 2006.
In 2021, 30-year-fixed mortgage rates will rise slowly from 2.7% to around 3%. That could mean homebuyers will be less willing to bid up home prices, but it likely won’t be a large enough change to deter them from purchasing homes. Mortgage rates will remain low primarily due to a sluggish global economic recovery.
Although the U.S. may be able to vaccinate most of its citizens by the end of 2021, many countries will struggle to distribute vaccines. Thus, the global economic recovery could take much longer, which would make U.S. mortgage-backed securities attractive to international investors, keeping mortgage rates low.
Even as the pandemic hopefully nears its end, Americans will continue to buy homes that fit their new lifestyle. As a result, 2021 will see more home sales than any year since 2006. Annual sales growth will increase from 5% in 2020 to over 10% in 2021.
Areas with the fewest Covid-19 cases per capita are now seeing 60% faster growth in the number of people listing homes for sale than areas with the most cases per capita. As Covid-19 cases hopefully decline due to vaccination, we expect more new listings to make for a more balanced market and more home sales. New listings declined 3% in 2020 from the previous year, but in 2021 we expect new listings to grow by over 5%. The increase in new listings combined with slowly rising mortgage rates will cause price growth to moderate to under 5% in 2021, down from 6% this year.
More new homes will be built next year than in any year since 2006. For over a decade, builders have struggled to construct enough homes to meet demand due to high costs of construction, but since the pandemic began, construction of new homes has spiked. Building permits were up 21% from September to November compared to the same time last year. That’s partially because home builders haven’t had to compete with office builders for labor, materials and land. Historically low interest rates have also allowed builders to borrow more cheaply for their projects further reducing the cost of building homes.
In 2021, the landscape for homebuilders will be even more favorable. Rising prices for existing homes will increasingly drive more buyers to consider a new one. And because homebuyers are now more eager to buy in suburban and rural areas where land is cheaper than in the cities, there will be more areas where homes can be built profitably.
In 2021, the number of Americans moving across county lines will surpass 14.5 million, as everyone settles into their post-pandemic ways of living. That will be more than a 25% increase in out-of-town movers from 2018 when 11.4 million Americans moved across county lines. The last time there was this much cross-county migration was 2004, when 15.3 million Americans moved counties. With the increased prevalence of remote work, many families will be able to move to more affordable areas away from the office.
That’s going to be good news for the economies of affordable places like Buffalo, Cleveland and Pittsburgh. These cities have lost more than 40% of their populations since the 1970s. As high-earning remote workers migrate in next year, they will need to hire local child-care providers, mechanics and plumbers, which will create economic opportunity in these places.
There will be many employers who want to take advantage of the fact that it costs a lot less to employ someone living in a place like Cleveland than a person with comparable skills in San Francisco. That will cause many employers to open or expand satellite offices in affordable cities and continue to offer the option for employees to work remotely from anywhere.
By the end of the year, the homeownership rate will rise above 69% for the first time since 2005. The normalization of remote work during the pandemic has set off a domino effect of increased homeownership. People who lived in expensive cities only to be close to work are abandoning their apartments to buy their first home in more affordable places. As small-time landlords in urban areas lose tenants, they will sell their investment properties. This surge in condos for sale, which currently sell for a 17% discount relative to single-family homes, will give many city-dwellers the opportunity to become first-time homebuyers as well.
For years, Americans have been leaving expensive coastal cities for more affordable southern cities like Austin, Phoenix and Miami. But those big southern cities have become unaffordable for both current residents, and new potential migrants. As a result, nearby smaller cities like San Antonio, Tucson and Tampa will experience an increase in population and demand for homes, which will heat up those housing markets the most in 2021. San Antonio homes cost 27% less than Austin homes (a median price of $263,000 compared to $362,000); Tucson homes cost 21% less than Phoenix homes ($265,000 compared to $336,000); and Tampa homes cost 24% less than Miami homes ($271,000 compared to $355,000).
“Most of my buyers are coming from out of state: California, Seattle, Oregon, some East coasters too,” said Tucson Redfin agent Kendra Haro. “They are usually torn between Tucson or Phoenix, but they like Tuscon more because it has less traffic, it’s smaller and you can get even more for your money.”
In 2021 expensive cities will lose residents as more office workers continue to work remotely. Many employers will decide to stop expanding their offices in expensive cities like San Francisco, Seattle, Boston and New York, and instead expand their satellite offices in more affordable cities like Phoenix or Atlanta. This will encourage even more office workers to leave expensive cities.
In order for expensive cities to survive as their tax base leaves, they will have to reimagine their economies. There will still be people who want to live in San Francisco or New York for the culture and art, and these cities will still be able to attract tourists once the pandemic ends, and it is safe to travel. These cities won’t die just because office workers leave, but these cities will have to be reborn with a greater emphasis on culture and lifestyle to attract residents and tourists.
In spring of 2020, 45% of recent homebuyers reported they had made an offer on a home sight unseen during their search for a home, and recent preliminary survey data shows the trend is becoming more common. Views of 3D walkthroughs on Redfin.com, where a homebuyer can point and click through a 3D scan of a home, have increased 560% since February. Video tours, where an agent views a home while the buyer is on a video call, represented less than 1% of all tour requests on Redfin before the pandemic and now account for about one in 10 home tour requests.
The increased use of 3D walkthroughs and video tours, coupled with more people relocating out of town, means the sight-unseen homebuying trend will continue, with the majority of 2021 buyers making an offer before stepping foot in the home.
“These days, video tours have generally become an accepted form of a home tour,” said Cleveland Redfin agent Danielle Parent. “I used to receive pushback from listing agents who were concerned that my buyer didn’t see the home in person before making an offer. But these concerns have waned during the pandemic.”
In 2021, homebuyers and sellers searching on websites like Redfin.com will see the buyers’ agent fee next to every home for sale. Redfin already displayed the buyers’ agent fee for its own listings, but in 2021, all listings will show the buyers’ agent fee as a consequence of a settlement between the Department of Justice and the National Association of Realtors.
Fees won’t drop overnight, but increased transparency will usher in a new era of price competition. A buyer, able to see what her agent will earn on a sale, may negotiate a refund or work out a fee-for-service arrangement. Sellers, now able to see the commissions their neighbors are offering, will factor this in when deciding what commission to offer on their own homes.
iBuyers and builders will also put downward pressure on buyers’ agent fees as they look for ways to cut costs. Because they are often selling multiple homes at the same time in the same market, they have been able to experiment with offering a lower commission to the buyer’s agent, and they have discovered that homes will still sell for the same price even when the buyers’ agent receives a lower fee.
The competitive battle in the industry will heat up, as the biggest real estate companies work to become a one-stop shop for customers, integrating home trade-in and cash offers, concierge listing prep, mortgage, title, insurance, home warranty and moving services. With access to billions in capital from Wall Street, these companies will invest in talent, technology and acquisitions in 2021.
Consumers want their real estate agents to provide the on-demand service they’ve come to expect in other industries from ride-hailing to grocery delivery. Agents will look to join real estate companies that help them deliver that service. More agents will see the benefits and career opportunities in joining a national real estate company that offers technology, support staff and an integrated service offering.
