The pandemic has disrupted everything that we considered to be normal and brought in unprecedented changes to our personal and professional lives. One of the few sectors that have defied the overall economic downturn, however, is the housing market. So how will the market perform in 2021? What are the biggest trends for the housing sector in the coming year?
While most sectors experienced a decline, the housing market in 2020 proved to be one of those outliers that experienced frantic growth. The lockdowns, social distancing, and remote work have profoundly impacted the market in ways no one could have known (who would have thought that Zillow surfing would be a thing!). With those learnings in mind, here are the four big trends that may define the housing market in 2021.
4 predictions for the housing market in 2021
1. A calmer market
The housing market experienced a lot of frenzy in 2020. It was fueled in part by the historically low mortgage rates. This raised homebuilder optimism and led to a surge in demand. The existing inventory couldn’t match the spike in demand, which led to higher prices. For the first time, the average existing-home price went over $300,000 in July. But that didn’t stop the housing market from crossing one million units in sales in August.
The coming year could see more of a balancing act between demand and supply. The inventory levels are expected to slowly rise in 2021. While it may not match the increased demand, the gap will reduce over the next few quarters. For homes that are newly listed, the inventory may go up sooner, which would slow down or even stabilize prices.
2. A new generation of buyers
Millennials will be the defining buyer group of 2021. The low mortgage rates are encouraging them to either upgrade to a bigger house or enter the housing market for the first time. It is the older millennials who will be trading up while the younger bracket in the group will be buying their first homes. The 24-and-younger members of Generation Z will also be becoming homebuyers for the first time in 2021.
There was apprehension that the furloughs and job losses would disproportionately affect millennials the most. The concern was that this would impact their ability to put down large down payments. But the buying spree has proven this concern misplaced. In fact, remote working may have increased their savings, enabling them to opt for larger payments upfront. More and more millennials are also willing to accept higher monthly payments for the opportunity to move into a bigger house. These trends are likely to continue well into 2021.
3. A new home office
Remote work has become institutionalized, leading to the creation of far more home offices. The new model of work could be onsite, remote, or a hybrid of the two. This means that traditional housing designs will have to be reimagined. Developers will have to make room for home offices while building new homes.
But this is not about providing more space. Buyers will prefer an integrated infrastructure that includes dedicated space for work, internet connection, and storage space. Builders who can meet these new demands will have an edge in this tech-enabled real estate market.
4. A move to the suburbs
Perhaps the most talked-about aspect of the housing market in 2020 has been the migration to the suburbs. With remote or hybrid work becoming the new normal – and likely to stay that way for the foreseeable future – there is little incentive to staying in congested cities. Sales of co-ops and condos fell over 60 percent in Manhattan alone.
Suburbs all over the country have witnessed a boom in sales. The markets around San Francisco, New York, and Los Angeles have been the frontrunners in this migration. Employees are increasingly opting for more space, both inside and outside their homes. They want bigger houses with lawns and backyards and easy access to schools and parks. In other words, the suburbs. This trend may remain the hallmark of the housing market in 2021.
If there’s anything that 2020 has taught us, it is that forecasting can be a tricky business. Last year this time no one could have imagined how 2020 would turn out to be. That said, this current set of circumstances, chiefly, low-interest rates, and location-neutral work, support these trends to continue in the coming year.