2021 Housing Market Predictions From an Economic Expert

Without clairvoyance, it would’ve been nearly impossible to foresee most of the events that unfolded in 2020. In the real estate realm, who could’ve guessed a global pandemic, citywide shutdowns, and widespread unemployment would’ve provided further fuel to already red-hot housing markets spanning the country.

However, with a million-plus Americans vaccinated inside of two weeks, economic experts are considering what’s likely to come in 2021 as we slowly return to some sense of normalcy. There’s finally a glimmer of light at the end of the tunnel—but once we’re in the clear, the time it takes to repair COVID’s collateral damage remains to be seen.

The good news for investors? Expect more of the same—or better—with regard to real estate in the coming year. The housing market will continue to hold strong as the rest of the economy rebounds from the coronavirus-driven recession, predicts Daryl Fairweather, chief economist at Redfin.

And Fairweather’s 2021 economic forecast, released Dec. 15, only gets more specific from there. Read on to inform your real estate investing strategy next year.

Prediction #1: Mortgage rates will remain historically low at 3%.

Thirty-year-fixed rates may tick up over the next 12 months, but if so, it will happen slowly and insignificantly. It won’t be enough to put off buyers, although it might impact their willingness to pay a premium to land property.

“Mortgage rates will remain low primarily due to a sluggish global economic recovery,” Fairweather explains.

Prediction #2: There will be more home sales than in any year since 2006, but price growth will slow.

New listings declined in 2020 compared to the previous year—particularly in coronavirus hotspots. But “as COVID-19 cases hopefully decline due to vaccination, Redfin expects more new listings to make for a more balanced market and more home sales.”

Prediction #3: There will be more new homes built than in any year since 2006.

Low interest rates have incentivized homebuilders to borrow for construction projects, and commercial builders have largely sat out 2020, making it easier to meet labor, material, and land demands for new homes.

Prediction #4: The number of Americans relocating will be the highest it has been in 16 years, which will help the economies of affordable places like Buffalo, Cleveland, and Pittsburgh.

With social distancing measures, remote work, homeschooling, and more, many settled into a new lifestyle in 2020—away from the hustle and bustle of once-thriving city centers and the high costs of living that came with living nearby.

“In 2021, the number of Americans moving across county lines will surpass 14.5 million,” Fairweather predicts. “The last time there was this much cross-county migration was 2004, when 15.3 million Americans moved counties.”

Prediction #5: The homeownership rate will reach 70% for the first time since 2005.

Work-from-home employees are ditching expensive rentals for affordable homes in the suburbs. The trickle-down effect could make it harder for small-time landlords to profit on urban investments.

“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.”

Prediction #6: San Antonio, Tucson, and Tampa will be the hottest housing markets as major southern cities like Austin, Phoenix, and Miami become unaffordable.

Coastal dwellers have long been ditching overpriced areas for other warm climates with more reasonable housing options—so much so, hip cities like Austin, Phoenix, and Miami no longer seem like much of a bargain.

Prediction #7: Expensive cities will invest in their culture and lifestyle to attract residents and tourists.

As residents flee expensive cities for reprieve from inflated real estate prices, places like San Francisco and New York will inevitably take a hit—especially when it comes to tax revenue. However, “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,” Fairweather says.

Prediction #8: Most homebuyers will make an offer on a home sight unseen.

With currently heated markets poised to light up even more, the fact is homebuyers will have no choice but to rely on virtual tours. This is especially true depending on how long the pandemic lingers and how comfortable society becomes with all-virtual everything.

Prediction #9: 2021 will usher in a new era of price competition for real estate agents.

“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,” the forecast notes. Fee transparency will offer both buyers and sellers a leg up when it comes to negotiating commissions.

Prediction #10: Everything associated with buying or selling a home will be offered at one-stop-shops.

With Wall Street pumping billions in capital into home buying and selling tech, “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.”

For Fairweather’s complete forecast, read the report on Redfin.

Which predictions are you sold on? Which seem like a stretch?

Weigh in with a comment below.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.