2020 was a roller-coaster of a year for the real estate industry. With all that has taken place over the past twelve months, it’s difficult to try and recall the beginning of 2020 as it seems almost like a different era. Despite the seemingly endless quarantine mode we seem to be stuck in, plenty has happened in the real estate sector. The housing market exploded in 2020, with seller inventory decreasing and buyer demand steadily ramping home prices upwards. Here’s a recap of what happened in 2020 and what’s predicted to come in 2021.
Although 2020 began like a relatively typical year with regards to the housing market, the available inventory of properties took a nosedive once the COVID-19 outbreak started to gain steam. Widespread economic uncertainty coupled with the risks associated with showing homes in person prompted potential sellers to hold off on putting their homes on the market. The impact? Housing inventory has been drastically reduced since early spring. Over the course of 2020, housing inventory has been reduced 32.5% compared to the previous year, which explains why some aspiring homeowners have found it challenging to find suitable housing options to suite their needs.
A substantially curtailed housing inventory has resulted in a significant uptick in demand from buyers, which has subsequently increased the listing price of homes on the market. Mortgage rates have also factored into this scenario—with the 30-year mortgage rate averaging at a near-record low of 2.81%, compared to the 3.69% median rate in 2019. The median home price rose from $266,200 in January 2020 to a whopping $311,800 in September 2020—an eyebrow raising 14.8% increase from 2019. Unsurprisingly, bidding wars have sprung up in 2020, functioning to drive prices up even further.
SUBURBS BECOME A HOT COMMODITY
Over the past year, the impact of housing preferences influenced heavily by the COVID-19 pandemic appears to have at least temporarily accelerated growth in the suburbs that was already being fueled by historically low interest rates and long-term demographic fluctuations. For many aspiring home buyers, the pandemic has forced economic and lifestyle evolutions that have influenced people to migrate to the suburbs instead of urban centers, to include: working and learning on a remote basis; not being able to access urban amenities due to partial or total quarantine protocol; and the need for more space as people find themselves spending more time indoors due to social distancing efforts. A survey conducted by the Pew Research Center indicated that a majority of individuals polled claimed fear of the coronavirus was a key factor behind their move, and among younger buyers, college closures and financial hardship were also cited for an explanation as to why they were moving away from cities.
LOOKING FORWARD—ANTICIPATING 2021
Whether home values continue to increase will be mainly dependent on housing inventory and mortgage rates—both of which are predicted to remain low well into 2021 and potentially longer. Should the recent vaccine be effective, however, there could be a rise in inventory, which would cause the market to open up over the course of 2021 and granting more entry-level homebuyers the change to take advantage of the favorable mortgage rates that are currently being offered. With uncertainty still abundant with the fallout of the November election, there could be a related decrease in home listings. After the transition of administrations, there may be a reduction in inventory. The winter period tends to be sluggish relatively speaking when it comes to property transactions, but come spring, there may be a significant amount of sellers wanting to list their properties. It is all largely dependent on how the economy is impacted over the next few months by the election period.
From a potential buyer’s perspective, it is safe to say that 2020 was a challenging period to try and purchase a home. On a positive note, if mortgage rates remain stable into 2021 and inventory steadily increases, buyers will have a substantially easier experience when it comes to finding a home that ticks all the boxes.