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New Study Finds Seller’s Market May Shift in 2021 – RealtyBizNews

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The phrase “record breaking” is everywhere at the moment, from major companies reporting record-breaking returns to market experts who predict a record-breaking post-pandemic economic boom. 

Although the housing market took a record-breaking nosedive in 2020, there’s light on the horizon as the U.S. inches its way toward recovery.    

What does that mean for the housing market in 2021? It’s a strong seller’s market right now, but will it remain that way, or will we see a shift to a buyer’s market later this year? 

One year into the pandemic

A recent report that surveyed 1,000 Americans one year into the pandemic suggests not everything is necessarily rosy on the housing market homefront, particularly for buyers. The market may shift as economic recovery moves forward but slowly. 

Some key findings include:

  • 43% of homeowners had plans to sell their home in 2020 or 2021 — but 65% delayed selling or decided not to sell altogether
  • Only 10% of homeowners sold their home as planned
  • 77% of these homeowners will list their home sometime in 2021, suggesting a rise in inventory and a potential shift from a seller’s market
  • 69% of Americans believe it’s currently a good time to purchase a home

To understand what’s influencing the 2021 market, let’s examine some key factors. 

Home prices have risen

At the beginning of 2021, median home prices were up 10% across most of the nation, the fastest rising pace since 2006, fueled by low mortgage rates and high demand.  Home prices are expected to continue to climb throughout 2021, as much as 5-8%

Great news for homeowners in terms of increased home equity (an average gain of $26,300 per homeowner), not great for affordability, particularly for first-time homebuyers who typically look to buy at the lower end of the market, where current inventory is the most limited. 

Prices for new home construction are also up (21%) as home builders raised their prices due to demand and soaring costs of materials coupled with supply chain issues. Currently, more than 75 million households cannot afford a median-priced new home, and more than 21 million U.S. households cannot afford a $100,000 home, squeezing out a significant portion of potential homebuyers for now. 

Those who can afford to buy homes in 2021 are high-earners and millennials, who made up the largest share of home buyers at 38%.

First-time homebuyers will need more money than ever to get their foot in the door of a new home. The median household income for first-time homebuyers in 2020 was $80,000, compared to about $68,000 in 2019. 

Mortgage rates are low … for now

Record-low mortgage rates have hovered below 3% for a 30-year fixed-rate mortgage since October 2020, which is good for buyers. Consumer income and spending is picking up thanks in part to widespread vaccination against COVID-19 and government stimulus and recovery spending plans. 

But some experts warn these low rates won’t last, and mortgage rates will rise as the economy heats up and more people get back to work. Other factors such as inflation and Federal Reserve policies will impact mortgage rates as well. 

Some economists are predicting mortgage rates to stay in the low 3% during the first half of the year but think it’s possible they could rise as high as 3.4% by the end of 2021. 

It’s a great time for investors with property to sell to take advantage of the favorable market and low mortgage rates, especially if they’re hoping to use the sale to purchase additional investment property. It’s a smart idea to be mindful of the ins and outs of a 1031 exchange and what your options are regarding tax on capital gains. 

Inventory is at a record low

Buyers have little to choose from as the number of homes listed for sale is down 22% compared to last year, and homes are staying on the market just 21 days on average.  

Fewer homes came on the market this past January and February to replenish supply, creating one of the worst housing supply shortages in recent memory. The current housing boom is a double-edged sword: Homeowners are wealthier thanks to skyrocketing home prices, but millions who were hoping to buy this year have been shut out by skyrocketing home prices. Some forecasts predict the rental market will remain hot, with families forced out of the market choosing to rent versus buy until the market cools. 

Other families are opting to stay put instead of moving and are instead using their budget to renovate the home they have. Dedicated spaces for remote work and school are at the top of the list, as is creating more usable, outdoor living space. 

In some parts of the country, homes are flying off the market in a matter of hours not days, often after a bidding war and for significantly over asking price. Advice for buyers? Make the strongest above-ask offer you can make, cash if possible, and free of seller concessions or other contingencies.

Of the 43% of homeowners who said they planned to sell their home in 2020 or 2021, 65% of them delayed or decided not to sell altogether. Of those sellers, 77% say they plan to sell sometime in 2021. This rise in inventory may help to alleviate the shortage, but it’s more likely to be a slow slog to the end of 2021, rather than a flood in the market. 

The inventory crunch might see a bump in an unfortunate way, as more than a half-million homeowners are projected to face foreclosure in 2021, double the number from 2020. Once foreclosure and forbearance bans are lifted this summer, homeowners affected by job loss and lack of stable income may struggle to keep their homes. Home buyers or investors may be able to find deals on foreclosed homes but should be aware of what they’re buying.

Competition is fierce

As employees start to return to the office, many companies are adopting a hybrid home-office solution, meaning working from home, at least part of the time, is here to stay. 

People desperate to get into larger homes are facing monster bidding wars. Some 64% of buyers actively looking for a home in early 2021 said they weren’t able to buy because they continually lost to buyers with better offers. 

More than half the homes for sale are going under contract in less than two weeks of listing, often at well over the asking price. 

Will we see a buyer’s market in 2021?

Elevated home prices and low inventory, stiff competition and slashed mortgage rates mean it’s still a seller’s market and likely to remain so for much of 2021

But a seller’s market with a caveat. Sellers should be aware that the market may cool when mortgage rates rise and more inventory from those delayed 2020 sales makes its way into the market. Affordability will remain a problem for many who are still reeling from pandemic turmoil, shrinking the buyer pool.  Until the housing supply increases, young, first-time buyers are limited in what they can afford to buy. 

But Americans are optimistic about economic recovery, though most believe it won’t fully happen until 2022 or later. Job growth is on the rise, and unemployment fell to 6.0% in March 2021. Recovery may be slow, but it’s a step forward, regardless of whether you’re buying or selling.

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