SEATTLE, Dec. 15, 2020 /PRNewswire/ — (NASDAQ: RDFN) — The housing market will remain strong through 2021 as the economy recovers from the pandemic-driven recession, according to predictions in a new report from Redfin (redfin.com), the technology-powered real estate brokerage. The report was written by Redfin Chief Economist Daryl Fairweather.
Prediction #1: Mortgage rates will remain historically low at 3%
In 2021, 30-year-fixed mortgage rates will rise slowly from 2.7% to around 3%. That could mean homebuyers will be less willing to bid up home prices, but it likely won’t be a large enough change to deter them from purchasing homes. Mortgage rates will remain low primarily due to a sluggish global economic recovery.
Although the U.S. may be able to vaccinate most of its citizens by the end of 2021, many countries will struggle to distribute vaccines. Thus, the global economic recovery could take much longer, which would make U.S. mortgage-backed securities attractive to international investors, keeping mortgage rates low.
Prediction #2: There will be more home sales than in any year since 2006, but price growth will slow
Areas with the fewest Covid-19 cases per capita are now seeing 60% faster growth in the number of people listing homes for sale than areas with the most cases per capita. As Covid-19 cases hopefully decline due to vaccination, Redfin expects more new listings to make for a more balanced market and more home sales. New listings declined 3% in 2020 from the previous year, but in 2021, Redfin expects new listings to grow by over 5%. The increase in new listings combined with slowly rising mortgage rates will cause price growth to moderate to under 5% in 2021, down from 6% this year.
Prediction #3: There will be more new homes built than in any year since 2006
More new homes will be built next year than in any year since 2006. For over a decade, builders have struggled to construct enough homes to meet demand due to high costs of construction, but since the pandemic began, construction of new homes has spiked. Building permits were up 21% from September to November compared to the same time last year. That’s partially because home builders haven’t had to compete with office builders for labor, materials and land. Historically low interest rates have also allowed builders to borrow more cheaply for their projects, further reducing the cost of building homes.
Prediction #4: The number of Americans relocating will be the highest it has been in 16 years, which will help the economies of affordable places like Buffalo, Cleveland and Pittsburgh
In 2021, the number of Americans moving across county lines will surpass 14.5 million, as everyone settles into their post-pandemic ways of living. That will be more than a 25% increase in out-of-town movers from 2018 when 11.4 million Americans moved across county lines. The last time there was this much cross-county migration was 2004, when 15.3 million Americans moved counties. With the increased prevalence of remote work, many families will be able to move to more affordable areas away from the office.
That’s going to be good news for the economies of affordable places like Buffalo, Cleveland and Pittsburgh. These cities have lost more than 40% of their populations since the 1970s. As high-earning remote workers migrate in next year, they will need to hire local child-care providers, mechanics and plumbers, which will create economic opportunity in these places.
Prediction #5: The homeownership rate will reach 70% for the first time since 2005
By the end of the year, the homeownership rate will rise above 69% for the first time since 2005. The normalization of remote work has set off a domino effect of increased homeownership. People who lived in expensive cities only to be close to work are abandoning their apartments to buy their first home in more affordable places. As small-time landlords in urban areas lose tenants, they will sell their investment properties. This surge in condos for sale, which currently sell for a 17% discount relative to single-family homes, will give many city-dwellers the opportunity to become first-time homebuyers as well.
Prediction #6: San Antonio, Tucson and Tampa will be the hottest housing markets as major southern cities like Austin, Phoenix and Miami become unaffordable
For years, Americans have been leaving expensive coastal cities for more affordable southern cities like Austin, Phoenix and Miami. But those big southern cities have become unaffordable for both current residents and new potential migrants. As a result, nearby smaller cities like San Antonio, Tucson and Tampa will experience an increase in population and demand for homes, which will heat up those housing markets the most in 2021.
“Most of my buyers are coming from out of state: California, Seattle, Oregon, some East coasters too,” said Tucson Redfin agent Kendra Haro. “They are usually torn between Tucson or Phoenix, but they like Tuscon more because it has less traffic, it’s smaller and you can get even more for your money.”
Prediction #7: Expensive cities will invest in their culture and lifestyle to attract residents and tourists
In 2021, expensive cities will lose residents as more office workers continue to work remotely. Many employers will decide to stop expanding their offices in expensive cities like San Francisco, Seattle, Boston and New York and instead expand their satellite offices in more affordable cities like Phoenix or Atlanta. This will encourage even more office workers to leave expensive cities.
In order for expensive cities to survive as their tax base leaves, they will have to reimagine their economies. There will still be people who want to live in San Francisco or New York for the culture and art, and these cities will still be able to attract tourists once the pandemic ends, and it is safe to travel. These cities won’t die just because office workers leave, but these cities will have to be reborn with a greater emphasis on culture and lifestyle to attract residents and tourists.
Prediction #8: Most homebuyers will make an offer on a home sight unseen
Views of 3D walkthroughs on Redfin.com, where a homebuyer can point and click through a 3D scan of a home, have increased 560% since February. Video tours, where an agent views a home while the buyer is on a video call, represented less than 1% of all tour requests on Redfin before the pandemic and now account for about one in 10 home tour requests.