2021 Real Estate Trends

The housing market has been gaining strength in the last few years — particularly during the COVID-19 pandemic. Home values soared, buyer demand jumped, and mortgage rates hit historic lows. And ultimately, it’s made housing one of the few bright spots during an otherwise difficult time.

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But the housing market is always in flux, and real estate trends come and go. Throw in that this industry is highly localized, with different conditions in every city, state, and metro area, and you can’t bet on things staying stagnant for long.

Fortunately, understanding the fundamentals of the market can help you stay on top of all these changes. Check out some of those fundamentals below, and scroll down for the most up-to-date real estate trends of the month.

Real estate prices
House prices are influenced by a number of factors, including local buyer demand and the amount of housing supply that’s available for purchase. Generally speaking, high demand and low supply cause housing prices to rise.

Mortgage rates can also play a role since they impact demand. When rates are lower, there tends to be more interest in buying homes. When rates rise, demand might wane a bit.

At the national level, home prices have been rising for some time. As of the end of 2020, the median home price was just under $347,000. Home prices jumped 11% across 2020 alone.

Housing affordability
Affordability isn’t just a result of house prices. Incomes, inflation, and interest rates also play a role. So rising prices? They don’t always mean homes are getting less affordable. If rates are particularly low or incomes are increasing, homebuyers might actually be able to afford more house than they could have previously.

Fortunately, that’s exactly the scenario we’re seeing today. When factoring in rates, income trends, and inflation, consumer house-buying power was actually up 21% by the end of 2020.

Interest rates
Mortgage interest rates play a big role in the housing market, impacting demand, home prices, and affordability. They also fluctuate daily based on a whole slew of factors, including Federal Reserve policy, the bond market, investor interest in mortgage-backed securities, and, of course, inflation.

In early 2021, mortgage rates hovered around all-time lows, according to Freddie Mac. The average rate on a 30-year, fixed-rate mortgage was just 2.74% in January, up from 3.62% the year before and 4.76% a decade prior.

Housing inventory
Housing inventory — or the supply of homes that are currently available for purchase — is another important factor in the housing market, too. When inventory is low and demand is high, it creates a seller’s market. Home prices rise, bidding wars erupt, and sellers have the upper hand in negotiations.

If inventory is high, on the other hand, buyers tend to have the advantage. In a buyer’s market, there are more available listings than there are buyers to purchase them. This slows down price growth and makes the market less competitive overall.

As far as today’s inventory goes, supply has been very low in recent years, and the coronavirus pandemic only worsened things. With sellers leery about having strangers in their homes — not to mention loads of economic uncertainty — the number of for-sale listings plummeted in 2020, at one point reaching its lowest level ever recorded. Listings have since recovered slightly but still remain fairly low. It’s possible widespread vaccinations will help loosen supply constraints and get sellers back on the market, but, of course, only time will tell.

Delinquencies and foreclosures
Mortgage delinquencies and distressed properties like foreclosures and REOs are another part of the market to pay attention to, especially if you’re an investor. Both of these tend to rise in times of economic hardship. (Case in point: During the financial crisis over a decade ago, there were around 3.8 million foreclosures.)

Though the pandemic has certainly caused some economic trouble — not to mention plenty of job loss — the same isn’t occurring this time around. That’s thanks to a variety of foreclosure bans (one from the White House for government-backed properties and another from the Federal Housing Finance Agency for those with Fannie Mae- and Freddie Mac-owned loans). As of early 2021, foreclosures were actually down 80% due to these measures.

Housing market cycles and crashes
Real estate, along with the overall economy, tends to be cyclical. There are booms and busts, and as we saw with the housing crash back in 2007-2008, some of these extremes can get pretty bad.

Fortunately, most experts don’t think we’re nearing another crisis just yet. Though the economy is in a recession, there are a few key differences in today’s housing market versus those of downturns past.

For one, property owners have record levels of equity. Between Q3 2019 and Q3 2020, homeowner equity jumped by $1 trillion, and according to recent data, a mere 3% of properties have negative equity. This equity protects borrowers in the event their homes lose value, giving them a sort of buffer if the market turns.

Lending standards are also stricter than they once were, so homeowners likely have fewer debts and better credit profiles; overall, they’re more financially equipped to handle the mortgages they’ve taken out. On top of all this, there are low-interest rates to consider. The Federal Reserve has committed to keeping the federal funds rate around zero until at least 2023. This should keep mortgage rates low and housing demand high for the foreseeable future.

Top real estate trends for May 2021
Now that you’ve got the basic market conditions under your belt, let’s move onto the month’s more timely real estate trends — particularly ones that impact active investors and their portfolios.

1. Supply is showing signs of letting up
It’s no secret that housing supply has been an issue lately — well, for quite some time, actually. According to Housing Tides data, the U.S. has a mere 1.6-month supply of homes, hovering just above the record low. This has sparked bidding wars, driven up prices, and made it harder than ever to find properties — for consumers and investors alike.

Fortunately, it appears there may be a light at the end of the tunnel — at least, a very distant one. According to a Zillow (NASDAQ: ZG) (NASDAQ: Z) survey of over 100 economists, 43% expect housing inventory to grow in the back half of 2021. Another 26% predict early 2022.

It’s more than just projections, though. Data from Realtor.com shows new listings were up 40% last week. While active inventory is still well below last year’s numbers, it’s a sign that sellers are getting off the sidelines and more supply is in the future.

2. Competition is still stiff
Until that inventory hits, the market is going to continue its competitive streak. According to Redfin (NASDAQ: RDFN), nearly two-thirds of buyers faced a bidding war last month. And in some areas, supply is so low that buyers are getting 80-plus offers in just a few days’ time.

The result is a challenging market that requires creative bidding. To win, buyers are having to waive contingencies, lease back the home (often for free), and many times, pay in all cash, just to get noticed.

All that is to say: If you’re eyeing a new investment property, get ready to pull out all the stops.

3. Prices are skyrocketing
Naturally, this high competition is driving prices upward. The latest S&P CoreLogic Case-Shiller Home Price Index has prices 12% higher than they were one year ago as of February 2021. It marks the ninth-straight month of price increases and the highest gain seen since February 2006.

Prices in some hot markets have climbed even more. In Phoenix, for example, home prices are up a whopping 17.4%. The city has led the way in price increases for nearly two years. San Diego also saw steep increases, with a 17% jump, and Seattle came in with the third-highest increase at 15.4%.

The price increases are even happening in urban areas, where people were previously fleeing during the pandemic. In fact, urban single-family homes (read: condos) have seen an almost 20% price jump over the year.

4. Rent relief is moving at a snail’s pace
Congress has set aside billions of dollars for rent relief, with hopes of keeping both struggling renters and landlords afloat. The only problem? States have been slow to implement these measures and issue the funds needed.

Take Texas, for example. Down here in the Lone Star State, the rent relief program has the power to help many. Offering back rent, future rent, and even utility bill payments, it’s a comprehensive measure that could do serious good for property owners and those they rent to.

The only problem? Few people have reaped the rewards. According to recent data, the state has only distributed a mere 3% of its funds.

It’s a similar story in other parts of the nation, too. In Oregon, just 12% of rent relief funds have been spent, and in California, problems with the program’s accessibility are causing holdups for many. When will landlords and tenants get the assistance they need? Only time will tell.


5. Rents are rebounding
Fortunately, there’s a silver lining for rental investors, particularly those investing in more urban areas. According to the latest data from Apartment List, big-city rents appear to be bouncing back.

In San Francisco, for example, rents were down over 26% in 2020. Now, they’re up 8.5% since January and down only 19% compared to a year earlier. Chicago and Minneapolis have also closed the gap considerably, with rents down just 6% and 7% over the year. In total, 9 of the 10 hardest-hit cities have seen positive rent growth since January.

Though these cities have yet to reach pre-pandemic levels, declines are shrinking — and that’s a good thing for investors. As Apartment List’s National Rent Report puts it, “The market has clearly turned a corner.”

The bottom line
The real estate market changes quickly. Want to make sure you’re prepared to invest successfully? Check back every month to catch up on the latest real estate trends and happenings.

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Source: https://www.fool.com/millionacres/real-estate-market/real-estate-trends/real-estate-trends-guide/

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