Top Trend to Watch for in the 2021 Housing Market

OC Housing Market Update for December and the Trends and my Predictions for 2021

SUPPLY

-Inventory fell 9% in the last two weeks, and 19% in the last month, this is the lowest level since tracking begin in 2004

-15% more homes actually hit the market in November this year compared to last year, but we sold 25% more homes than last November which is why the supply keeps dropping 

-44% more homes available at this time last year 

DEMAND

-3% drop in the last two weeks and 9% over the last month

-Strongest demand for December since 2011

-Demand was 24% lower last year at this time

-Average expected market time (the time you put your home up for sale to the time it goes into escrow) is now 37 days for all of OC last year it was 70 days

INTEREST RATES:

-Just hit another all-time low yesterday at 2.67%. Money has never been this cheap to borrow for a home loan

LUXURY MARKET– 1.25 million and above

-YOY demand is up 80% 

-YOY inventory is down 22% 

-This has created one of the best markets for luxury properties we have seen in a long time in Southern California

Demand has continued to remain strong even as we are in the middle of the holiday season and another Covid-19 surge, while supply has dropped to the lowest level since at least 2004. This, along with another week of the lowest interest rates ever seen for a mortgage, is causing the housing market to end the year as one of the hottest seller’s markets ever seen. What does this all mean for 2021? Here are my top predictions and trends to expect as the housing market enters the new year:

1. Interest rates will rise – Almost all of the top economists and housing forecasters have now predicted a slight increase in interest rates by the end of 2021. Most experts are saying to expect them to rise to somewhere around 3-3.5% which is still historically low, however, even a small bump in interest rates can significantly impact the type of home you can afford
2. Appreciation – Expect appreciation next year in the US ranging anywhere from 2-8% depending on where you live. In southern California, I am predicting that we will see rapid appreciation for the first half of the year, and then it will slow down during the second half and the economy hopefully starts to normalize.  I’m expecting anywhere from 4-8% appreciation in Southern California in 2021 based on the current trends. 
3. Seller’s market – 2021 will start out as one of the hottest seller’s markets on record, however, as the back half of the year approaches, I believe that rising appreciation and interest rates will help us get back to a more normal market cycle. That being said, it’s still predicted to be a seller’s market throughout all of 2021 but it will just cool down a bit as the year goes on.
4. More Sales – 2021 will be a record-breaking year for the number of homes sold. We will probably have somewhere between 5-7% more homes sold in 2021 than we did this year, and this year in Southern California surprisingly, we actually sold more homes than in 2019. Next year is set up to see more home sales than any time since at least 2006. 
5. Rise in foreclosures – Yes, we will have an uptick in foreclosures next year as forbearance periods expire, however, it’s important to remember this is not going to be another housing crisis like we saw play out during the great recession.  The market fundamentals are completely different. There are many reasons this isn’t going to become an issue but here are the top 3 
   1. Homeowners today have equity in their homes – 90% of homeowners with a mortgage have at least 10% equity in their homes right now which means that if they were forced to sell, they would be breaking even or making money on the sale. This is in stark contrast to the  equity people had in their homes during the housing crash where because of bad lending practices many homeowners where underwater on their mortgages.  
   2. 48% of those in forbearance right now aren’t actually missing any payments, they took the forbearance options as an emergency backup in case something happened, and they needed to stop making payments. Another large chunk of those who are in forbearance are actively talking to their banks about how to restructure their loan so they can make up the missed payments by adding it to the end of their loan. Remember, banks don’t want to go through the foreclosure process, it costs them time and money and if the homeowner has equity in their home, it’s really in the banks best interest to work out a deal where they can get paid in full. 
   3.  For those who do end up having to go through the foreclosure process/sell their home, the market is so hot right now, because of the historic interest rates and inventory levels, the market will quickly absorb the foreclosure that do hit the market without causing depreciation in the housing market.
6. Buyer Research – In 2021 buyers will have more information than ever before about the homes they are thinking of purchasing. We saw the rise of 3D tours, video tours, and video showing during 2020 due to Covid-19 and that trend is expected to stay. If you are selling your home in the future these are now a must have items for your marketing.
7. Moving out of the cities – Although buyers have been steadily moving away from the cities and into the suburbs for years now, Covid-19 has accelerated this trend. As many employers have realized that they don’t actually need all employees to be in the office every day, remote working is here to stay. Also, due to Covid-19 many families are rethinking what is important to them in their home, families want space, home offices, backyards, and are willing to live farther and farther away from the big cities to get more room in and outside of the house. Expect to see higher appreciation rates over the next few years in the suburbs vs. city centers.  

Buyers: The longer you wait to get into a home, the higher prices and interest rates will most likely be in 2021. It’s going to be tough competition to get into a home in 2021, but those that have the perseverance to continue placing offer after offer until they succeed will lock in the lowest interest rates we have ever seen in the industry. More inventory will hit the market next year as each month goes by, but appreciation and increasing interest rates will start to eat away at affordability for many buyers so you will have a limited opportunity in the beginning of the year to get into a home before prices and interest rates go up. As a buyer, you need to be thinking long term. The biggest thing to concentrate on is your monthly payments for a home and buying for the long-term 5+ years. You will need to be willing to stretch a bit over the latest comps to secure a home in the 2021 market.

Sellers: As long as you price you home according to fair market value, and market it correctly, you will have a very good chance of selling your home quickly and at top dollar, especially in the first half of the year. Once again, the biggest caution I continue to warn about it overpricing, there are about 20% of homes that are still sitting on the market for over two months now. Yes, there is a lot to be excited about when selling your home right now, but if you don’t take advantage of the first few weeks of your home being new on the market, your chances of getting the best price for your home, especially if it’s under 1.25 million, will start to decrease quickly. You need to make sure you price in-line with market value, the competition from buyers will help make sure you get the best price for your home, your goal needs to be to make sure you get as many buyers through your doors as possible during those critical first few weeks. The longer you wait to put your home on the market in 2021 the more likely interest rates will be higher which will price some buyers out of the market. Get your home on the market at the end of January-March to see the best results this year.

THINGS TO WATCHOUT FOR IN 2021:

Inflation is predicted but if we start seeing it happen at a rapid pace next year it could drive interest rates higher faster than expected which could cause many buyers to pause their search because homes suddenly become less affordable.

Yes, foreclosures will most likely not have a significant impact on the market, but this is all assuming that the government can step up and help out either the renters make their monthly payments, and/or help the landlords by covering some of the loss of revenue caused by renters not paying to prevent an eviction crisis from happening once eviction bans are lifted.  If the government does nothing, we will not only have a huge issue with homelessness but landlords who have fallen behind on paying for their income properties might be tempted to sell and not deal with being a landlord anymore. Especially those mom-and-pop landlords that own less than 5 properties. 

If interest rates rise faster than predicted, and at the same time the government passes nothing else to help with the economic recovery, we could see a situation where sellers start to panic sell thinking we are about to hit the top of the market and all put their homes up for sale at the same time. Again, this scenario is very unlikely, but I always want to make sure you get the facts about the risks in the market so you can make an informed decision when deciding if you want to buy or sell in the next year.

I think we can all agree that we would like to put 2020 behind us and I am personally looking forward to the start of 2021. I just wanted to take a moment to thank everyone for their support over the years and I hope that the content I am delivering is helping you better understand what is happening in the market. Please don’t hesitate to reach out to me with any additional questions about your specific situation, I am always here to help!