When Real Estate Prices Are Expected To Increase

Fannie Mae recently said that demand for homes remained strong, and the ESR Group revised up its annual forecast for home sales due to continued supply constraints and a higher outlook for mortgage rates. Sources: 8

Freddie Mac predicted home prices would rise 6.6 percent in 2021 and 4.4 percent in 2022. Freddie Mac expects home sales to reach 7.1 million in 2021, but fall to 6.7 million by 2022. Given the persistent imbalance between supply and demand, home prices are projected to increase by 8% in 2020 (versus a forecast of 4.2%) and slow to an annualized 2.9% in 2022, according to the FHFA Home Price Index. Sources: 8

Home sales growth in 2020 will rise from 5 percent to more than 10 percent in 2021. The Association of the Property Finance Industry expects 6.3 million sales of existing homes and a 989,000 increase in new home salesSources: 6

As you can see, lower mortgage rates will help, but will not eliminate the risk of an affordability squeeze facing the housing market, as home prices continue to rise at a rapid pace. The combination of rising mortgage rates and rising home prices will accelerate the fall in affordability, putting further pressure on potential homebuyers during the spring season. The housing market is still hot, but we’ll see how rising home prices affect affordability as mortgage rates continue to fall in 2021. Sources: 11

Average mortgage rates are at their lowest in years, meaning prospective home buyers have never been in a better time to buy a home. Homes sell quickly, and homebuyers are tied to low-interest rates in a hot housing market. Sources: 2

In other words, low mortgage rates will continue to give first-time homebuyers greater purchasing power. These conditions have forced many prospective buyers into the housing market, and the number of homes for sale has declined in recent months. But home prices are hitting new limits as buyer demand continues to rise. Sources: 1, 9

It is too early to say what will happen to house prices in 2020 and 2021, but if history repeats itself, we can expect home prices to fall as a result of the COVID-19 recession. Property markets are predicting a robust sellers “market in 2021, with house prices hitting new highs and buyer competition remaining strong. Rising home prices, mortgage rates, and rents will pose affordability challenges. Sources: 3, 6

Low mortgage rates over the past year, combined with low supply and high demand for housing, have ignited a raging fire under home prices. Home prices overheated when mortgage rates rose; the stock of homes for sale was anemic and consumer confidence fell in the housing market. Although new home prices rose because of rising prices, the lack of existing home sales meant that new homes were the only option for potential homebuyers. Sources: 0, 11

In 2013, the average selling price of a home sold in the US rebounded to pre-crisis levels. In fact, the price of an existing home increased every year from 1963 to 2007, with few exceptions. Even as sales of existing homes in much of the United States slumped month by month, the median price of existing homes rose by $330,000. Sources: 2, 3

If interest rates remain above 3%, existing-home sales will reach their highest level in 14 years for the rest of 2020. A combination of solid sales and depleted supply has pushed the national median house price across all types of housing up to $309,800, a 12.9% increase from December 2019 and 106 straight months of annual gains. Sources: 7

As the housing market continues to struggle with supply and demand imbalances, resulting in continued competition for buyers, further appreciation in home prices is likely to be slower than in 2020. Sources: 9

It is important to understand the current and forecast state of the housing market, whether you work in real estate or are interested in buying or selling a home next year. Fannie Mae and the Economic Strategic Research (ESR) Group expect the US economy to grow by 5.3% in 2021, which would be a recovering economy, and earlier indicators such as lower mortgage rates, higher home prices, and higher demand suggest a stable housing market in 2021. Americans “expectations of homeownership have also proven to have an impact on the health of the current housing market in the past. Sources: 1, 4, 5

Between 2008 and 2012, more than 34% of Americans expected home prices to rise. In 2003, Americans were also optimistic about home buying when the home prices were rising — 81% said it was a good time to buy a home. Sources: 1

Three months ago, when the US housing market was in the midst of recovery after a short slump, more than 100 economists, investment strategists, and real estate experts had anticipated a slight 0.3% decline in home prices in 2020. That decline was absent, but panelists adjusted their expectations in the face of low inventories and strong buyer demand that drove up prices. All groups are now more likely to expect real estate prices to rise than a year ago. Sources: 1, 10

Yun pointed out that mortgage rates rose from 4% at the start of the year to 4.6% at the end of the year, even as the economy recorded strong job creation and falling home sales. Lower mortgage rates have an indirect impact on home prices because consumers are willing to take more debt when credit is cheaper. The report shows that despite the slowdown in home sales, the housing market will remain strong as mortgage rates rise to higher levels later this year, along with rising long-term bond yields. Sources: 0, 3, 11

While it is impossible to predict the overall housing market, most experts believe we will see mortgage rates rise for the rest of 2021. Overall, the market will remain seller-friendly for buyers as lower mortgage rates will improve the choice of properties for sale.

Cited Sources