The housing outlook for 2021 benefits from strong momentum in 2020. Last year, home prices rose 8.4%. Low inventory of homes for sale was a key driver. Strong demographic trends also contributed as more millennials reach peak home buying ages.
The median home price climbed from $279k at the start of 2020 to $317k at the end of the year. Zillow forecasts home prices to rise 10.5% over the next year.
Many worry about another bubble in home prices. Yet builders have not constructed homes near the pace of the 2003 to 2007 period. In addition, the process for obtaining loans is much more difficult today than in the last cycle. Ask any mortgage applicant how much documentation is needed now.
While prices climb, affordability looks reasonable. Household income grew during 2020, despite the rise in unemployment. Lower interest rates allow for reasonable payments. Interest payments as a percent of disposable income hit a 40-year low.
Technology trends accelerated during the pandemic. The CEO of Microsoft said the pandemic pushed “two years of digital transformation into two months.” From Zoom meetings to food delivery, more activity happens online.
For home buyers, the acceptance of 3D tours continues gaining acceptance. This may serve as an initial walk-through for a home, helping buyers and agents improve efficiency. In turn, this lowers the amount of time homes sit on the market for sale.
A positive outlook for housing into next year remains. Higher interest rates could be a factor that slows prices. Monitoring how homebuilders pace the new supply of homes is key over the long-term.
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