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The Real Estate Market Has Good News for 2021

Hold on tight(-er), the 2021 housing market is gearing up to be busier than the last part of 2020.

“On an aggregated level, the housing economy remains rock solid despite the shock and awe of the pandemic,”

-Franklin Martel, President & CEO of CoreLogic.

During this unprecedented time in history, the housing market has become the backbone of the economic recovery in the U.S. But the truth is the housing market has been doing very well the last few years and was already projected to be steady in the upcoming years. Due to the COVID-19 pandemic, the U.S. economy was purposely paused throughout the spring months, which forced a short pause in our traditionally busy time in the housing market and caused concern for the industry as a whole. Fortunately, once shelter-in-place orders were lifted across the country, home shoppers jumped back in the market to purchase homes. The traditional home buying ramp up in the spring and summer months was delayed, so we are now seeing more and more people enter the market this fall season.

Now that the last quarter of 2020 is upon us, we are forced to deny our natural instinct to slow down. The Pandemic of 2020 has taken an already healthy housing market and given it a turbo boost for the foreseeable future. If anything, real estate is looking even brighter than before the pandemic. 

Looking back over the last few months, there are three major COVID-related contributors to the increased enthusiasm for the housing market.

 

Low Interest Rates

To avoid wild movements in the market, the Fed announced on September 16, 2020, that interest rates will be low for an extended period of time. How long? Through 2023 and possibly beyond.

The Fed has two main jobs:

  • Keep prices stable
  • Maximize employment

For most of the past decade, the Fed has maintained a target inflation rate of 2 percent. After meeting in September, the Fed is willing to let its current policies drive inflation above the standard 2 percent target inflation rate for extended periods to help keep interest rates low.

The policymaking Federal Open Market Committee (FOMC) shared this message to emphasize the inflation goal right now:

“It will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”

Market Update- Interest Rates

 

Home Affordability 

Even though home prices continue to be high because of low interest rates, homes are more affordable. This is excellent news for home buyers! When rates are low, monthly payments are lower—which ultimately increases buyers' home affordability.

For example, for every 1/8 percent (or 0.125 percent) drop of interest rate, there is about a 2 percent increase in what buyers can afford right now. That is huge! So, if your clients were able to afford a $500,000 home, they would now be able to afford a home priced at $565,000 if rates dropped just 0.125 percent!

Market Update - Home Affordability

 

The Economy

Although we are not where we were in January or February of 2020, the American economy is thankfully recovering stronger and faster than expected. 

V-Shaped Recovery - There continues to be a strong demand for housing. We have seen a v-shaped economic recovery since March 2020 (when the country was under shelter-in-place orders). Home sales and new home constructions have continued to increase nationally.

Unemployment Rate - We are seeing a surprising improvement in unemployment numbers since the initial shut-down. Jobs are returning stronger and faster than what was expected. The U.S. Bureau of Labor Statistics just released the latest update of Americans returning to the workforce. The significant improvements in the service and hospitality, and recreation and entertainment industries suggests a quick and robust economic recovery.

This means that more and more people are confident in entering the housing market—this is fantastic news for both buyers and sellers. With rates remaining low through at least 2023, the housing market will have a steady future - and that's Good News!

Checkout the full Market Update for even more great information!

2020 Q4 Update Cover Images

 

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