Real Estate Market Q2 2021 Predictions

Real Estate Market Q2 2021 Predictions

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Home prices skyrocketed in 2020, as scores of long-time city dwellers sought to relocate from cramped urban environments to the suburbs offering far more space for parents to telework and for kids to play outdoors. The good news is that 2021 is shaping up to be another dynamic year for the housing market—with Q2 looking very promising for those involved in the industry. Even after the approximate 11% increase in 2020, anticipate home prices to ramp up an additional 7% in the coming months.

There was a temporary slump in construction over the course of January and early February to kick off the new year. Housing starts declined by 6% to 1.58 million annualized units; however, the aggregate number of starts remained 2.8% above this time last year. Similarly, while single-family starts dropped by 12.2% from last month—their lowest dip since September 2020—there was a 3.8% jump in single-family building permits that indicates a much more robust performance from a construction standpoint for the next few months. At the same time, multifamily starts rose 7.1% in January and this growth does not seem to be slowing down anytime soon as permits for multifamily construction projects increased by a whopping 27.2%. It’s safe to say that despite what looked like a weak start to 2021, the confidence of homebuilders is high and there looks to be a period of sustained development on the horizon that could further stimulate what is already a healthy real estate market.

New home sales are still going strong, increasing 4.3% to a seasonally adjusted average of 923,000. Sales increased the most in the Midwest, West and South of the country while falling off slightly in the Northeast—a trend that most experts predict will continue into Q2. The overall new housing inventory rose 2.7% in January, with the majority of this rise attributable to properties where construction has not been initiated. At only 4.1 months’ worth of demand at the current rate of purchasing, the supply of new homes available on the market is nearing historic shortages. The relatively scarce inventory will most likely impact sales quotas as potential buyers find it challenging to find properties that tick all the boxes on their wish lists. New home prices have consistently increased due to the high demand for bigger homes with all the amenities, with new homes ranging from $500,000 to $750,000 accounting for the largest portion of aggregate sales. This price bracket should continue to be active over Q2, further pushing the apparent housing shortage and nudging up the average price of new homes.

Sales for existing homes started off 2021 on a high note, increasing 0.6% in January, to a seasonally adjusted total of 6.69 million—a considerable increase of 23.7% from this time last year. Homeowners remain somewhat hesitant to put their properties on the market, even though there is substantial demand for homes from potential buyers. On a year-over-year basis, the overall inventory has decreased by 25.7 percent, although this number is expected to rise with the start of the annual spring selling season as increased listing prices entice more sellers. There was only a 1.9-month supply of existing homes at the end of January. With inventories so reduced, houses that do hit the market aren’t lingering for long. On average, homes only stayed on the market for 21 days in January, compared to 43 days in 2020.

Home prices continue to climb amidst the decreased inventory, with housing demand forecasted to level off over Q2 as affordability continues to drop off. The boost in affordability offered by record-low interest rates has been effectively mitigated by the recent rise in housing prices and mortgage rates are set to climb. Still, with construction set to ramp up over the next few months, inventories should rebound quickly and the pent-up demand could see a very active Q2.

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Real Estate Market Q2 2021 Predictions
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Real Estate Market Q2 2021 Predictions

Home prices skyrocketed in 2020, as scores of long-time city dwellers sought to relocate from cramped urban environments to the suburbs offering far more space