Chances are, you or someone you know has bought or sold a house in the last 10 months. No matter if you are moving across the street or across the country, it’s all part of a record-setting real estate boom.
The Covid-19 pandemic has affected every industry, but perhaps none as surprisingly as real estate. Triggered by job and financial changes, the push to stay at home, and low-interest rates, a record number of people have bought homes during the pandemic, even as a recession lingers and unemployment rates remain high. And the trend will continue throughout 2021.
The real estate boom is far from over. Here are three key home buying trends to look for in 2021.
Homes aren’t just selling, they’re selling at a record-setting pace. The Covid-fueled real estate boost caused an average of 42% of home listings nationwide to sell in two weeks or less. One survey found that more than half of homebuyers say the pandemic accelerated their homebuying process. In the competitive San Diego market, 55% of homes are off the market in less than weeks, with an average of just 20 days on the market.
The record-setting pace is good news for sellers but makes for a difficult experience for buyers. In many cases, potential buyers are outpriced in the competitive market or forced to make rash decisions.
However, the record-setting pace could start to slow slightly during 2021. Houses were flying off the market because of a supply shortage and an increase in demand, largely due to a spring freeze in buying, paired with low-interest rates and changing job situations. But as supply and demand start to balance out as the year progresses, look for the competitive seller’s market to slow down, but not by much.
In 2021, Zillow expects 6.9 million existing-home sales, which is the most since 2005. The projected 21.9% one-year gain in sales is the largest since the early 1980s. An increasing number of millennials are buying houses, and with Gen Z closing in on the prime homebuying age, the market demand should hold steady throughout 2021 and into the future.
Perhaps the good news for buyers is that 2021 won’t be such a steady rush. Due to the pandemic, typical homebuying seasons went out the window in 2020, creating a free for all. But as things return to a new type of normal in 2021, look for homebuying seasons to return, with a surge of buyers in the spring and summer months and things cooling down towards winter.
Changed Budgets, Higher Prices
The homebuying surge comes in the middle of financial strain and high unemployment numbers. So although many people are buying homes, they aren’t always stretching their budgets. The research found 63% of homebuyers were forced to lower their budget by an average
of $28,400 due to the pandemic. At the same time, 65% of buyers backed out of buying a home, most often due to budget.
When paired with record-low interest rates, lower budgets can still get buyers more home than they could have bought a year ago. Interest rates are likely to stay low throughout 2021 but will start to increase in the second half of the year. Buyers or people who were thinking of buying within the next few years are now speeding up their timelines to make their money go further.
Lowered budgets are changing what some homebuyers are looking for, leading to growth in less expensive regions. In some cases, buyers with lowered budgets are shopping for homes below their price range in hopes of being able to put in an above-list price offer.
Although individuals are lowering their personal budgets, the markets as a whole are increasing. A rise in demand is actually raising home prices. Nearly one in four buyers who purchased between April and June 2020 paid $500,000 or more, an increase from 14% of buyers in the preceding nine months. Experts predict that home prices will increase 5.7% in 2021 to reach new heights.
Leaving Cities And High-Tax Areas
The move to remote working has pushed people out of cities and led to an increase in home buying in the suburbs. Suburban areas have seen higher home sales growth than urban areas, and many homebuyers have increased their willingness to commute when they return to work in the office.
In the suburbs, homebuyers are more likely to find traits that are increasingly desirable: larger houses for more time spent at home, dedicated office space and personal outdoor space, as well as proximity to beaches, trails, and open space.
The top 10 most competitive real estate markets during the pandemic are Seattle, Omaha, Lexington, Denver, Indianapolis, Portland, Oklahoma City, Sacramento, Oakland, and Tulsa. These areas will continue to thrive in 2021, especially in their suburban areas.
Aside from leaving urban centers, many people are leaving high-tax areas. Some of the world’s richest people, including Elon Musk, who recently overtook Jeff Bezos as the richest person in the world, are leaving high-tax areas like California in favor of lower taxes. Musk moved himself and the headquarters of SpaceX from California, the state with the highest income tax, to Texas, a state with no income tax. Joining the ranks include Splunk CEO Doug Merritt, who also moved to Texas, Oracle co-founder Larry Ellison, who relocated to Hawaii, and even Tom Brady, who recently bought a Miami mansion.
The effects of the ultra-rich leaving high-tax areas will be felt throughout their cities. Others may follow in their footsteps to take advantage of lower taxes, especially as remote work opens up the potential to work from anywhere, and finances are tight for many people.
What will real estate look like in 2021? In most cases, a continuation of the incredible growth of 2020. Even during a pandemic and recession, homes will continue to sell at a breakneck pace.