Market Update: May 2021

Dated: April 26 2021

Views: 163

In summer 2021 expect to see some changes, but continued low inventory and renter affordability issues are likely to persist through the warmer months.

Multifamily residential building under construction in Santa Clara

The U.S. entered 2021 with pandemic fatigue, though it hadn't – and still hasn't – slowed down homebuyer activity. The first months of the year have seen rapid growth in home prices as low inventory of houses on the market combined with high buyer demand creates fierce competition in suburban areas and medium-to-small metro areas across the country.

Looking forward to late spring and summer, the fast rollout of COVID-19 vaccines is making many hopeful that an end to the pandemic is in sight. But some housing market trends caused by the pandemic are expected to continue.

In summer 2021, here are a few trends shaping up for the housing market:

  • Interest rates may rise slightly, but are expected to remain relatively low.
  • Home inventory will increase, but it will stay a seller's market.
  • Homebuyers will still be focused in the suburbs, but interest in city living will see some revival.
  • Rental assistance will ease some eviction worries for renters, but the financial impact of the pandemic will be long-lasting.

Here's what experts are predicting for buyers, sellers, renters and new construction in summer 2021.

Buying

The coronavirus pandemic drove mortgage interest rates to historic lows for most of 2020, and the new year started off with a new record low for interest rates for 30-year, fixed-rate mortgages when Freddie Mac reported the average interest rate was 2.65% in early January.

Going into spring, mortgage interest rates have trended upward, but still remain low from a historical standpoint. On April 8, Freddie Mac reported the average interest rate for a 30-year, fixed-rate mortgage was 3.13%.

Low interest rates, the continued creation of new households across the U.S. and a desire for more space among existing homeowners have driven demand through the roof in 2020 and the start of 2021. Many areas are seller's markets, meaning there aren't enough homes available to match the number of active buyers.

The number of homes on the market in March was 52% lower than in March 2020, according to a  from realtor.com published on April 1. Homebuyers can expect to compete with others in home offers, which can drive up prices and may mean your home search takes longer because you lose out to competing offers on a couple of homes before your offer is accepted.

George Ratiu, senior economist for realtor.com, says the competition won't deter many buyers from the market. The largest share of homebuyers across the U.S. are millennials, with the youngest in the generation closing in on 30 years old – a popular time to consider buying a home.

"For many millennials the last year provided an opportunity to save. … Yes, the market is difficult, but a lot of young people out there remain committed to buying a home," Ratiu says.

Todd Szwajkowski, a real estate broker and president of SwakeGroup at Dream Town Realty in Chicago, as well as president of the firm's LGBT client services division, says that he was surprised when 2020 turned out to be his team's best year for home sales, despite the pandemic.

Based on the number of interested buyers so far this year, Szwajkowski says he expects strong transaction numbers to continue, especially as vaccines continue to roll out and cases of the coronavirus continue to decline. "I don't think it's going to negatively affect the market. If anything, I think it's going to be good for the market," he says.

Selling

A major contributor to the low supply of homes on the market in the latter half of 2020 was the fact that many homeowners chose not to relocate – especially if they were already in a house with plenty of space for remote work and virtual schooling.

As many grow hopeful for an end to the pandemic, some sellers appear to be more inclined to reenter the market. The realtor.com report notes that while the number of new listings in March was 20% lower than the number of new listings in March 2020, the decrease is not as steep as February's new listings number, which was 24.5% lower than February 2020.

Ratiu notes that growing consumer confidence, the rollout of vaccinations for adults and declining unemployment numbers all make selling a home feel less risky. "A lot of sellers have been looking at these as a green signal," he says. Expect inventory to pick up in April, May and as we head into summer, June and July."

Though, this increase in inventory will be at a "measured pace," Ratiu says, because most home sellers don't effectively increase housing inventory without also contributing to rising demand. Most sellers will buy another house to live in after selling their current one.

Sellers will continue to have the upper hand throughout the summer of 2021, and it's reasonable to expect home prices to climb as a result – a positive for those who do choose to sell their houses. In February, the national median home price for existing homes was $313,000, a 15.8% increase from a year prior, according to the National Association of Realtors.

Keep in mind that these numbers represent the expectation for housing on a national scale. The effects on individual housing markets will vary widely.Renting

The pandemic's economic impact has been far less kind to the rental market in the U.S. than the homeowner market. Renter households have, on the whole, been more deeply impacted by the shutting of retail stores, restaurants and other workplaces requiring in-person work that isn't necessarily considered essential. As a result, the ability of tenants to afford rent has been a growing concern during the pandemic.

In an effort to reduce the amount of back rent owed across the U.S., Congress has approved more than $46 billion in rental assistance, between the coronavirus relief package passed in December 2020, and the American Rescue Plan Act passed in March.

The U.S. Centers for Disease Control and Prevention has extended its eviction moratorium – which halts evictions for those facing financial difficulties due to the pandemic – through June 30. The extension gives more time for the federal rental assistance to be distributed by state governments.

Even with hope for continued economic recovery, lower coronavirus infection rates and distributed federal rental assistance funds, Diane Yentel, president and CEO of the National Low Income Housing Coalition, says it's unclear whether lifting the moratorium will be possible without seeing mass evictions. "It's hard to say where we'll be in June," she says.

But the rental industry isn't exclusively seeing hardship, and likely will see more positive strides heading into summer. Plenty of people who aren't purchasing a home are looking to move to a rental with more space.

Kim Reidy, director of relocation and senior broker for Seattle Rental Group, the rental arm of brokerage Pointe3 Real Estate, says landlords in the Seattle area are reporting that they receive between 50 and 100 emails from interested renters within 24 hours of listing a single-family house for rent online. She also says she's been in touch with more than 1,000 people looking to move into rentals in Seattle by the end of August – which is a sign that there could be renewed interest in the urban core of major cities as the weather warms.

"I believe we're going to see that kind of crazy demand through the rest of the year," Reidy says.

New Construction and Development

The answer to high demand among homebuyers is to build new houses, and for those houses to meet the space requirements many are seeking after a year spent working, learning and relaxing all at home.

Low rates of residential construction have lent to a housing shortage over a period of multiple years. "Before the pandemic we were in a market where homebuilders had not put up enough homes," Ratiu says.

It appears builders are working to ease demand at least somewhat. In February, there were building permits authorized for 1.68 million privately owned new housing units in the country, according to the U.S. Census Bureau, 17% above February 2020, though below January 2021's reported 1.88 million.

As the weather warms up for ideal construction conditions in many parts of the U.S., expect these approved properties to come on the market or become occupied after completion.

Even with consistent growth in builder activity, most housing markets can still expect the number of homebuyers to outpace the inventory of available homes.

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