Most — if not all — U.S. housing markets have heavily favored the seller during the COVID-19 pandemic, and many areas haven’t seen any evidence of it slowing down. Will we see a more balanced market in the second half of the year? Homeowners have been hesitant to put their home on the market, creating a shortage of inventory and plenty of buyers waiting to snatch up a home.
Will the market switch to a buyer’s one in 2021 as more homeowners become more comfortable with selling? Here are some points to consider as we answer that question.
Inventory will be more stable
Clever’s most recent financial well-being report from April 2021 found that 43% of homeowners planned to sell in 2020 or 2021, but 65% of them delayed selling their homes or decided not to sell altogether. Just 10% of homeowners sold their homes over the past year as planned. The same report found that 77% of these homeowners plan to list their home sometime in 2021, which suggests a much-needed rise in inventory.
Although this may not fully make up for the lack of inventory over the past year — which was a major cause of the red hot seller’s market — it will help to see a more balanced market. In turn, this could lead us down the road of a shift from a seller’s market to a more neutral — or even lukewarm buyer’s market — in late 2021 or later.
Interest rates will stay low
Interest rates for mortgages are currently at historic lows and are likely to continue to stay low. According to the Federal Reserve, the federal funds rate will not be increased until 2022. Although the Fed does not set mortgage rates, its actions do indirectly influence the rates consumers pay on their fixed-rate home loans.
Consumer sentiments are more hopeful
Generally, Americans seem to be breathing a great sigh of relief as furloughs and layoffs slow and life begins its slow return to normal. With this comes less stress, more hope for the future, and a general feeling of stability returning to the American consumer — and this certainly translates to a more balanced market.
In Clever’s research, 69% of Americans believe now is a good time to buy a home. Pair this with lower interest rates, larger down payments from stimulus checks, and a better financial outlook for those who managed to keep their job during the pandemic, and we could continue to see a huge demand for homes in 2021.
Employment will increase
Many service workers lost hours, wages, or jobs as a result of shutdowns and decreased indoor capacity for many businesses. As more Americans get vaccinated and restrictions loosen around the country, businesses will begin to increase hours and capacity, and those service workers may gain full employment again.
We’ve already begun to see job growth picking up, and the unemployment rate will continue to improve from its low of 14.8% in April 2020. A lower unemployment rate and more steady job market usually means higher expected income among potential home buyers and thus, higher demand for housing. So, a low unemployment rate typically indicates more sellers putting their homes on the market resulting in higher inventory levels but also higher demand.
Government stimulus packages will slow or stop
The U.S. economy has been artificially propped up by the three economic stimulus packages passed by Congress over the past year. The stimulus packages included — among other things — stimulus checks for most Americans and their children. This has provided much-needed relief for some and has also resulted in fatter savings accounts, decreased debt, more money to invest in the stock market through day trading, or a larger down payment for a home for others.
But, once the economy begins to recover, these stimulus packages will slow or stop. There is talk of a fourth stimulus package resulting in direct stimulus checks, but it does not have bipartisan support in Congress and is far from passing. There is also a bill called the First-Time Homebuyer Act that may provide incentive for first-time homebuyers to jump into the market. More buyers don’t necessary mean a more balanced market, but it does provide some incentive for sellers to get off the fence.
Bottom line: A slight shift
With so much in limbo — vaccinations, COVID-19 variants, stimulus packages, foreclosures, and interest rates — it’s tricky to predict where the housing market will go from here. But our best guess is that, given the points above, we will likely see a slight shift from the strong seller’s market we have now. If you have investor clients, now may be a good time for them to take advantage of a 1031 exchange.
But, don’t get too excited about the opportunity for seller concessions just yet. As people feel more comfortable moving about and vaccinations continue, inventory will increase and a more balanced market will follow. However, there are many factors still working in favor of a seller’s market — including low interest rates and an influx of buyers — so we still probably won’t see a full shift to a buyer’s market in 2021.
Luke Babich is the Co-Founder and COO at Clever Real Estate, the nation’s leading real estate education platform for home buyers, sellers, and investors.