Where Are Home Prices Headed by 2021?

In this post we will discuss where home prices are going in 2021.

Last year, when shelter-in-place orders were introduced, many wondered what the closure would mean for the real estate market. There was worry, specifically, regarding home prices. Will 2021 be the year for this growth trend to come to a screeching halt after years of rising home prices? Worse still, will home prices start to depreciate?

This volatility was modelled by original predictions, varying from home values that gained 3% (Zelman & Associates) to home values that depreciated by more than 6% (CoreLogic).

As the year progressed;  however, it became apparent that the housing market would have little negative effects. As revealed recently by Mark Fleming, Chief Economist at First American:

“The only major industry to display immunity to the economic impacts of the coronavirus is the housing market.”

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We expect sales to grow 7 percent and prices to rise another 5.7 percent on top of 2021’s already high levels. While we expect mortgage rates to tick up gradually, sales and price growth will be propelled by still strong demand, a recovering economy, and still low mortgage rates. High buyer demand and still-lagging supply will keep prices growing, but at a slower pace than 2021 as buyers contend with mortgage rate and price increases that create affordability challenges. 

Supply and affordability are two items to look at. Will there be enough houses, and at what price, for those who need them? Covid-19 served to accelerate a move toward single-family home living that had started to take shape over the past few years. Much of this move is being led by Millennials, who are transitioning squarely into prime household formation years. However, that generation is also the least wealthy at a time when the cost of homeownership continues to climb. We believe these demographic factors bode well in the coming years for the rental housing market, particularly single-family rental homes. Millennials’ demand for housing is not going to diminish, but it may just take a little longer to make homeownership a reality.

Have rates continued to rise this year so far?

The Federal Agency for Housing Finance (FHFA) published its new Home Price Index last week. Home prices actually increased 6.5 percent from the same time last year, the study showed. The FHFA also noticed that over the summer months, price appreciation accelerated to record levels:

What are the analysts predicting for the future of home prices?

A graph of home price forecasts for the next year is given below. Over the last few months, as the market has changed drastically, this graph displays predictions that have been released as September 1.

In this post, we discussed where the home prices are headed in 2021.

Bottom Line

In 2021 will see more home sales than any year since 2006. Annual sales growth will increase from 5% in 2020 to over 10% in 2021. Rising prices for existing homes will increasingly drive more buyers to consider a new one.

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