NAR Chief Economist Yun predicts low mortgage rates (3.1%) next year, a 3% home price increase, 9% existing-home sales increase and a 23% surge in new-home sales.
The housing market defied high unemployment and an economic recession and surged during the COVID-19 pandemic – and that isn’t likely to let up heading into the winter months, says National Association of Realtors® (NAR) Chief Economist Lawrence Yun, chief economist of the National Association of REALTORS® during Tuesday’s “Residential Economic Issues & Trends Forum” at the virtual 2020 REALTORS® Conference & Expo.
“2020 has been a year of surprises,” Yun said during NAR’s virtual convention – notably with a robust housing market in the middle of a global pandemic.
“This winter may be one of the best winters for sales activity,” Yun said. “It won’t match summer or spring sales numbers, but on a winter-to-winter comparison, this could be one of the best breakout years just based on the fact that pending contracts are at such a higher level.”
Mortgage applications are also up 20% year-over-year, which reflects the number of buyers in the pipeline approved for mortgages and ready to buy. Home prices are up too: The median existing-home price for all housing types was $311,800 in September – a 14.8% increase from a year ago.
What else does 2021 hold? Yun thinks the persistent housing shortage will likely keep home prices elevated, while new- and existing-home sales will continue to rise as record low mortgage rates and a work-from-home trend give housing markets a boost.
Yun’s 2021 housing forecast and recap of 2020 forecast
Mortgage rates: 3.1% (3% for 2020 forecast)
New-home sales: +23% (+20% for 2020)
Existing-home sales: +9% (+3% for 2020)
Home prices: +3% (+6% for 2020)
GDP growth: +4% (-5% for 2020)
Job gains: +3 million (-7 million for 2020)
10-year treasury: 1% (0.9% for 2020)
Consumer price inflation: 1.6% (1% for 2020)
Low mortgage rates are key against higher prices, Yun said when he addressed Realtors during the conference. One major factor contributing to the hot housing market has been record-low mortgage rates, under 3%. Yun predicts rates will continue to stay low into 2021. Mortgage rates are helping housing affordability balance against rising home prices.
“Some affordability challenges can be alleviated because of mortgage rates,” Yun said. However, “if home prices continue to rise at this current level, it could chip away at housing affordability.”
The economy likely will continue a strong recovery – but that’s dependent on a vaccine. Still, the economy remains short 10 million jobs in order to return to prior peak employment levels, and there’s a big variation in employment recovery among states.
If another lockdown occurs – due to escalating instances of the virus resurfacing – employment could take another hit, Yun warned. Nevertheless, many Americans’ personal incomes have received a boost from stimulus checks, small business loans and unemployment insurance over recent months. And consumers’ savings rate has remained elevated during the pandemic.
“That could be unleashed spending into the economy once there’s a vaccine,” Yun said.
Foreclosures likely won’t have a sizable impact on the market because “the job market is not back to normal,” Yun said. So when pandemic-related foreclosure moratoriums and mortgage forbearance programs come to an end, that could lead to a spike in foreclosures, Yun noted.
“That will be terrible for families losing their homes … but from a marketplace point of view, it will be completely unlike the subprime bust” more than a decade ago, Yun said. Back then, there was a 10-month supply of housing inventory compared to this market, which is under a 3-month supply.
“We are lacking inventory,” he said. “Any foreclosure increases will likely be quickly absorbed by the market. It will not lead to any price declines.”
Indeed, most homeowners have continued to gain equity in the pandemic. For example, the typical buyer who purchased their home in 2011 has accumulated about $120,000 in housing wealth today. Those who purchased in 2016 have about $60,000 in housing wealth.
Housing shortages will persist. “The challenge going forward is we don’t have enough supply,” Yun said. A balanced housing market is considered to be at a five-to-six-month supply, far from the current market’s under-three-month supply. “There are not enough homes for sale, and that means multiple offers and prices that are rising too fast. It also could limit some renters from becoming owners.”
Newly constructed homes also have low inventories. Builders have been hit by labor and lot shortages, and rising lumber costs that limit production.
Yun sees work-from-home trends drive housing preferences, with more Americans rethinking where they call home. About half of Americans who used to work in an office are still working from home, which sparked widespread office vacancies in many cities, Yun said. Several tech companies have even announced a permanent transition to working from home for its employees. That could mean the latest move-to-the-suburbs trend could continue after the pandemic too, Yun said.
“‘Work from home’ can also now mean ‘work from vacation home,’” Yun added, noting a rise in home sales in vacation and resort areas since the pandemic. “If you don’t have to commute every day, you might not mind living farther out.”
A recent NAR survey showed that 47% of Realtors said their clients are interested in moving to the suburbs or a subdivision, and 39% are interested in relocating to a rural area. However, only 14% are interested in moving to an urban area or central city. Many homebuyers also want larger homes, sometimes to accommodate multiple generations, according to NAR’s 2020 Profile of Home Buyers and SellersOpens in new tab.. Yun predicts the move to smaller cities and suburbs will continue beyond the pandemic due to a lasting work-from-home trend.
Source: Florida Realtors® & National Association of Realtors®
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