0
0
0

Strong housing market fundamentals to remain a constant in 2021, says new report

by Kerrie Kennedy

Strong housing market fundamentals to remain a constant in 2021, says new report

Was 2020’s stellar housing market in the midst of a pandemic-induced recession an anomaly that’s going to correct itself in 2021?
Not according to a new report from global title insurance provider First American, which shows that many of the underlying fundamentals behind the record-breaking year in real estate will continue through 2021.
First American’s Potential Home Sales Model for the month of November showed potential existing-home sales increased 3% month over month to a 6.05 million seasonally adjusted annualized rate. This represents a 73.5% increase from the market potential low point reached in February 1993.
In addition, market potential for existing-home sales increased 10% year over year, a gain of nearly 551,135 sales. Currently, potential existing-home sales is 743,100 million or 10.9% below the pre-recession peak of market potential, which occurred in April 2006.
“The housing market continues to impress, even as it enters the colder months, which is traditionally real estate’s slow season,” said First American Chief Economist Mark Fleming in a press release. “After falling to a near-decade low in May due to pandemic-driven pressures, existing-home sales hit a 14-year high in October. While the housing market rebound has been nothing short of incredible, the forces driving the rebound existed prior to the pandemic. Looking ahead, the good news for housing market potential is these fundamental forces are likely to remain constant throughout 2021.”
According to Fleming, rising house-buying power — one of the biggest drivers of demand — is expected to remain in place, along with low interest rates. “Consensus forecasts estimate the 30-year, fixed mortgage rate will likely average 3% next year, with forecasts ranging from 2.8% to 3.3%, so house-buying power is expected to remain strong in 2021 and continue to drive demand for homes,” he said.
Besides low interest rates, rapid price appreciation is arming homeowners with even more buying power, persuading them to trade up. “As homeowners gain equity in their homes, they are more tempted to consider using the equity to purchase a larger or more attractive home,” said Fleming. “The allure of the more attractive house can help encourage more homeowners to list their homes for sale.”
Millennial household formation, which contributed to a gain of approximately 161,000 potential home sales in November from a year ago, is another trend that’s expected to continue in the new year. “The homeownership rate has been steadily rising since 2016, mostly due to millennial household formation,” said Fleming. “The bulk of millennials turned 30 this year and are beginning to age into their prime home-buying years, a demographic tailwind that will continue to boost housing market potential for years to come.”
Meanwhile, increasing tenure length — the average length of time someone lives in their home — along with a new-home construction deficit means demand will continue to outweigh supply. “New- and existing-home inventory sits at historical lows,” Fleming said. “While builders are working hard to deliver more supply to meet rising demand, it will take years to make up the decade-long gap. Fewer existing homeowners listing their homes for sale and a new-home construction deficit means the limited supply of homes for sale will remain another 2021 constant.”
While tightened lending conditions could put the squeeze on some buyers in 2021, it remains unclear how that will play out in 2021. In November, looser credit conditions increased potential home sales by 54,000 year over year.
“Strong underlying fundamentals shaped the housing market’s remarkable comeback story in 2020, helping overcome the pandemic-driven spring slowdown and ultimately fueling a record-breaking year,” Fleming noted. “Add a vaccine to the story, and the stage is set for another strong year in 2021.”

Read More Related to This Post

Join the conversation

New Subscribe