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Housing Market Predictions 2021 - Crash or No?

Updated: Mar 24


housing market predictions 2021

With there being a pandemic still looming around, and people not wanting to get out and socialize, you might be thinking the housing market might crash soon (I know I was thinking that).


With widespread stay-at-home orders, who would think that people would be out buying houses?


HOUSING MARKET PREDICTIONS 2021
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But is that really the case? Will the housing market actually crash in 2021? That’s what I’m going to share with you today. In this article you will see:

  • The Housing Market 2020 Trend

  • The 2021 Market Predictions

  • Expected Mortgage Rates For 2021

  • The Housing Price Forecast For 2022


The housing market predictions 2021 has may really surprise you. The information provided here will be beneficial for anyone wanting to buy or sell a house, or if you’re a realtor.


So, what did 2020 look like for the housing market, and will 2021 be any different?



The Housing Market 2020 Trend

The housing market trend in 2020 was strong until the pandemic hit. Things were going great until COVID-19 showed its ugly face in the united states.


Not long after the pandemic made its way through the country did the housing market make a complete rebound. The housing market trend exploded in 2020. There were multiple reasons, and it was mostly caused by the pandemic.


Before I go into details, lets remind ourselves what took place in 2020 when the pandemic began:

  • Stay-at-home orders

  • Massive lockdowns

  • Massive job loss

  • Stock market crash


In these conditions, no one could have expected the housing market to do so well. Realtors and brokerages across the country feared the worst as they saw for a little while a huge dip in sales, but it wasn’t long after that it rebounded, and is still rebounding.


The 2020 Housing Market Hit New Highs

Since 2006, home units sold in 2020 rose to its highest level. With record home buying levels comes a record low inventory of homes on the market. Supply can barely keep up with the demand for home buyers.


According to the National Association of Realtors (1), January and February of 2020 started off with home selling highs around 5.4 million. When the pandemic occurred, home sales dropped to almost 4 million by May of 2020. As of May 2020, lock downs were ending in most of the country, and therefore the home units sold per month began to rise and rise drastically.


By January 2021, the home units sold were at 6.69 million, up around 23.7% from the previous January in 2020.

The US home sales from January 2020 to January 2021
Source: NAR January 2021 Existing-Home Sales


What Influenced the Record Highs?

  • More people working from home influenced more to buy homes with features to accommodate their working arrangements (Extra rooms, office space, basement, bigger home). 56% of realtors actually reported that they had leads who were interested in such features for working from home (2).

Statistics showing the percentage of homebuyers who looked for work from home features in a house.
  • Record low Mortgage rates. Before COVID-19, the average rate for a 30-year mortgage was about 3.7%. In response to the pandemic, the Federal Reserve dropped interest rates to 2.65% as of January 2021 and back up to 2.73% as of February 2021 (3). Low Mortgage rates makes it more affordable for home buyers in which less interest is paid. Check out the current rates here.


There were others that influenced the housing market to set record highs, but those were most likely the more notable reasons.



The 2021 Housing Market Predictions

As you can see the housing market for 2020 crashed once the pandemic occurred but set record highs nearing the end of 2020 into 2021. January 2021 has already been doing really well so far. January 2021 saw 6.69 million home sales according to NAR (4).


How long can the market sustain these record highs?


To start off with the 2021 housing market forecast, the demand is still high for home buyers, but the supply is low.


“This in turn will drive home buying to become more competitive and therefore driving home sale prices higher.”


It’s simple supply and demand logic. When demand is high for a product, and supply is low, more and more people are willing to pay more to get what they want. This is what’s beginning to happen in the housing market in 2021.


Source: NAR January 2021 Existing-Home Sales

As you can see, existing inventory has begun to drop nearing January of 2021, per the NAR. Let’s consider what will influence the 2021 market.


Mortgage Rates Will Rise

Mortgage rates were at their lowest point near January 2021. This make home buying more affordable for everyone as less interest is being paid.


This will influence more people to want to buy new homes and/or refinance for a cheaper mortgage rate. With low rates, most people are likely to buy a new home with more features, or a bigger home that has become more affordable.


The low rates won’t last forever. They are low currently due to the pandemic, but as things recover, rates are likely to rise. Mortgage rates are not likely to make it to pre-pandemic levels, however. Keep reading to see our forecast for mortgage rates for 2021.


Job Recoveries

As our economy recovers from the pandemic, we will begin to see more jobs become available in the coming years.


With job recoveries and low interest rates combined, this could mean that the demand to buy new homes will increase greatly in the year 2021 and possibly into 2022.


Supply and Demand Law

Supply and demand balance

Supply and demand play a huge factor in the housing market. As something becomes more desirable, more people want it. That being said, the housing market will need to keep up with the number of homes that are demanded.


If supply is low, the demand is still there and will therefore drive up home values.


“The predicted housing market for this year is that home values will continue to increase due to the law of supply and demand and is influenced by low mortgage interest rates. The housing market will fluctuate throughout the year, but overall will trend higher for 2021.”


Not Enough Homes Listed

 Chart of the US showing the current homebuyer and home seller traffic
Source: REALTORS CONFIDENCE INDEX SURVEY August 2020

There will be a high demand for home buyers in 2021, but also a shortage of sellers. Homes will become available in 2021, but homebuyers will have to compete to get their dream home.


For these reasons, homes won’t last very long on the market, making people more competitive this year.



Expected Mortgage Rates For 2021

Mortgage rates are expected to grow to 3% on average and higher as the economy rebuilds and may increase slightly from there into the 2022 year. Interest rates will increase but are not expected to grow higher than 3.40% by the years end.


Benefits for Home Sellers

As a home seller you can have peace about the market this year. You can expect your home to sell quickly given the current conditions of the housing market.


Depending on your home and your situation, you should have no problem selling relatively quickly.


This also means that your current home probably has a higher value, or that you have more equity in your current home. This means you could sell your home for more than what you originally bought it for.


With the available equity you could place this as a down payment for a newer or bigger home at a more affordable price given the mortgage rates.


Benefits for Homebuyers

As a homebuyer, it won’t be easy this year. The housing market will be competitive as the number of homes may be less. This is because the homes available will go quickly due to the demand for more homes.


But rest assured, if you bring you’re A-game, you should be able to find a home and get it for a more affordable monthly payment.


With lower mortgage interest rates, this will mean you as a homebuyer will get a lower monthly payment. This makes buying a new home more affordable for the average homebuyer.


Sure, the rates may begin to increase throughout the year, but overall, for the 2021 year you should be able to, if you find a home, get it for a more affordable rate.



The Housing Price Forecast For 2022

In the 2022 year, you can expect mortgage rates to have increased a bit higher than where they are starting out in 2021.


The expected demand for 2021 will eventually level out and finding a home will be less competitive, but not as affordable as it will be in the 2021 year.



Final Thoughts

If you’re ready to buy or sell a home, you can expect to have great year. The housing market is predicted to continue increasing and do very well.


If you think you’ll be buying a home or selling one soon, start planning for it. Check out this post on different mortgages out there and find out which one will work for you and what credit score you might need. You want to be ready and approved for a mortgage before a home hits the market.


The sooner you get approved up to a certain amount on a mortgage, the faster you can submit offers on homes as they become available. You don’t want to make offers on homes without already being approved because you don’t know if that house might be more than you can qualify for. So apply now and the bank should hold your approval until you’re ready to make an offer.


If you need help building your credit, we have a fantastic article here for you that will help anyone with any credit rating boost their credit score.


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(1) https://www.nar.realtor/blogs/economists-outlook/january-2021-existing-home-sales-annual-pace-rises-to-6-69-million

(2) https://www.nar.realtor/research-and-statistics/research-reports/realtors-confidence-index

(3) https://ycharts.com/indicators/30_year_mortgage_rate

(4) https://www.nar.realtor/blogs/economists-outlook/january-2021-existing-home-sales-annual-pace-rises-to-6-69-million

(5) https://www.nar.realtor/sites/default/files/documents/2020-08-realtors-confidence-index-09-22-2020.pdf

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