Will Home Prices Go Up or Down in 2021? We Make Some Bold Real Estate Market Predictions
First, we’ll discuss real estate markets predictions for 2021 in the United States and where statistics and data point indicate for the future.
Next, here are some statistics and highlights that help determine real estate market predictions for 2021:
- US National Debt is now over $26 Trillion
- Total Debt to GDP for the United states is over 150%
- The Federal Reserve currently owns approximately 20% of all mortgages in the U.S. today (approximately $2 Trillion)
- Home foreclosures are beginning to increase
Home foreclosures on unpaid mortgages are beginning to increase. Many people are currently in mortgage forbearance. As a result, owners are not making payments and not being punished for no payments (avoiding bank foreclosure).
In contrast, it’s important to note that home sales are up. In addition, prices on homes throughout the United States are up as well. Moreover, many people would say that we are in a real estate boom. As a result, there has been a trend up for prices and actual sales in real estate for numerous years.
What Experts Say About Real Estate Market Predictions
The Perfect Storm of Low Interest Rates, High Demand and Low Supply Has Arrived; People are Emigrating from Larger Cities to Smaller Ones
According to real estate analyst Neil McCoy-Ward, this boom will not last. Momentum in the real estate market has caused houses to sell at record high prices. In addition, houses are selling quicker than normal. Mr. McCoy-Ward is anticipating a slowdown in home sales beginning in the fall and winter of 2020. Furthermore, he anticipates that in early 2021, prices will come down and the bubble in home prices will begin a decline.
Mr. McCoy-ward stated that this is “the perfect storm,” creating higher home prices. For example, he credits the market frenzy of buying and selling of homes to low interest rates, high demand for homes and low supply. He recommends staying out of the market as a buyer unless you intend to stay in the home for many years and you want to take advantage to low interest rates for mortgages.
The last time that home prices peaked in the United States was in the Summer of 2006. Sometime later, real estate prices began a decline in price. Finally, a crisis soon followed and the decline.
The Subprime Mortgage Crisis
“The United States subprime mortgage crisis was a nationwide financial crisis that occurred between 2007 and 2010, and contributed to the U.S. financial crisis. It was triggered by a large decline in home prices after the collapse of a housing bubble, leading to mortgage delinquencies, foreclosures, and the devaluation of housing-related securities.”-Wikipedia.com
The subprime mortgage crisis led to the Great Recession of 2007-2009.
Real Estate Bubble
Unemployment, Low Interest Rates and Coronavirus Had a Big Impact on the Economy
The United States real estate market has been growing at a very past pace for years. Some would call this growth a bubble. In this case, the bubble has formed because credit is easily accessible for most people who want to buy a home.
Interest rates for home mortgages are at historical lows. According to Bankrate, the interest rate on a 30-year mortgage averages around 3%. Some people would argue that interest rates are lower now than at any time in history. This is a pretty big deal and things can’t remain this way forever.
According to the Bureau of Labor Statistics, 13% of Americans were unemployed in May 2020. In addition, 30 Million Americans filed for unemployment benefits in June 2020, approximately 10% of the entire US population (Source: CNBC News).
The coronavirus outbreak of 2020 has had big impacts on the US economy. Big layoffs and job losses have occurred continuously in 2020. For example, Disney and MGM have laid off thousands of workers. These layoffs mean that these former employees will be struggling to make ends meet and won’t be buying new homes.
A Tale of Two Cities: Real Estate Market Predictions
Americans are Moving from States Like New York and California in Large Numbers
It’s important to understand that real estate prices are going down. However, there will be winners and losers in the market short term. For example, it appears that in the short term, a divided real estate market may present itself.
Current data being reported in the media shows people leaving larger coastal cities and going to smaller inland cities. For example, Californians have been moving out of California to places like Washington, Arizona and Texas in record numbers. This is not a new phenomenon and the trend appears to be gaining speed.
As a result, larger coastal cities like Los Angeles and New York City are seeing reductions in demand for real estate as residents leave the cities permanently. In turn, smaller cities like Phoenix and Las Vegas are experiencing higher demand for real estate as residents move in from the coastal cities.
It appears that in the short term, cities where people are moving to (like Las Vegas) may see higher prices during the coming real estate bubble deflation. The worst case scenario for cities receiving the influx of those moving from elsewhere would be that property values would remain steady.
Juxtaposed to this phenomenon, larger cities are seeing an increase in available real estate, causing supply to outpace demand. As a result, prices are already dipping lower in cities seeing a mass exodus.
The lesson here is that in order to make logical real estate market predictions for your home market, determine whether you are in an area where people are moving to or from. For example, if you live in Phoenix, Arizona, you are probably in a strong market that is attracting Californians. As a result, prices will likely be stable or even positive in the near term.
Now, one other caveat to consider is the state of the economy currently. Unfortunately, unemployment rates are high the US. Higher unemployment rates are negative for home buyers and are typically seen as a harbinger for decreased demand. As a result, unemployment may cause a decline in home buying nationwide.
Commercial Real Estate
A Decrease in Commercial Real Estate Demand is Expected
Although we are not focusing on commercial real estate here, there are still some real estate market predictions to be made. For example, it is clear that the state of how businesses and their employees interact changed greatly in 2020. Many people lost their jobs. In addition, many of those who were lucky enough to have a job began working from home.
As a result, it seems likely that there will be decreased demand for commercial real estate in cities. With more employees working from home, less business space is required for employees. In addition, many companies see this as progress and improving upon efficiency. Companies will pay less for the space they use because they require smaller office spaces. Some businesses may not need physical space any longer.
Real Estate Market Predictions for 2021
As a Mass Exodus from Big Cities Occurs, Unemployment is High and the COVID Black Swan Hits, the Real Estate Bubble Begins Deflating
Here’s what our real estate market predictions look like for 2021. It’s impossible to predict the future, especially with so many unknowns at play. What we know is that real estate has been in a bubble for years because of low interest rate mortgages. Prices have gone too high, too fast. As a result, what goes up, must come down. Prices will be reduced in our real estate market predictions. The question is how long it will last.
Second, we know that people are leaving big cities and going to smaller cities. This mass exodus will have positive results for the cities where people move to. The cities that the emigration leaves behind will suffer with lower demand, lower prices and deflation of markets. How long it lasts is unknown.
Third, we know that unemployment in the United States right now is around 10%. This is a conservative number and the real unemployment rate is probably much higher. As a result, people who don’t have jobs don’t buy houses. In addition, demand for real estate is weakened. This causes prices to fall.
Finally, a great Black Swan event occurred in 2020, which threw a wrench into the worldwide economy. COVID-19, and the reaction by governments worldwide is unprecedented. It will have lasting economic results for years to come. Real estate prices will suffer for several years.