Housing Market Predictions for 2020 & 2021 [Plus COVID-19 Impacts]

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Summary: In this article, we’ll share our top housing market predictions for 2020 and 2021, including a full COVID-19 update. Topics also include home sales, demand and inventory, job loss, tenants paying rent, the economy, mortgage defaults as moratoriums end, the declining value of the dollar, more renters than owners, political climate, tariffs and more. We’ll share predictions about what we expect in 2020 and 2021 and how to plan accordingly.

Introduction

Going into 2020, there was concern for real estate investors about how the housing market would perform in the coming year. These concerns were fueled by changes to the Federal Reserve Monetary Policy, a decline in the stock market, a surplus of available jobs, all-time low unemployment rates, not enough affordable housing to accommodate a huge millennial population, and high consumer debt.  

Now that we are more than halfway through 2020 and dealing with the impacts of the Coronavirus, most predictions for this year have been thrown out the window. Instead, we are worrying about all-time high unemployment rates, very few jobs, a health care crisis, an unstable stock market, and an economy in recession. 

The question most of us are asking is what’s going to happen during the second half of 2020? Will we start seeing an influx of foreclosures as mortgage moratoriums are lifted and government aid runs out? We’ll discuss all this and more in our housing market predictions for 2020 with a Coronavirus update! 

11 Housing Market Predictions for 2020 to 2021 & COVID-19 Impacts

Not surprisingly, we saw a big drop in real estate activity immediately following the COVID-19 outbreak. But in the last two months, home sales have started to rebound. There is still high demand for affordable real estate in growing markets. This issue is the lack of housing available to buy. 

While the Coronavirus pandemic has impacted nearly every person on the planet, the housing market overall has fared relatively well compared to other industries. Here are my “best-guess” predictions for the housing market in 2020, 2021 and beyond.

Infographic Highlighting Housing Market Predictions and Impact 1-5 from COVID-19

#1: Home Sales Bouncing Back This Summer

The first of our eleven housing market predictions for 2020 and 2021 is that home sales will bounce back this summer. We saw a 26.6% dip in existing home sales in May this year, according to NAR. But in June, home sales bounced back by almost 21%. Compared to June 2019, existing-home sales this year are down 11.3%. 

New home sales also rose by 13.8% between May 2020 and June. Last year at the same time, new home sales were up 6.9%. While home sales are trending back up, a huge lack of new and existing homes for sale continues to be a roadblock for buyers. 

#2: Low Inventory & High Demand Drive Home Prices Up

For sale inventories in June were down over 18% compared to June 2019. The national median price of existing homes sold in June was $295,300, a 3.5% increase from 2019. New home sales kept rising in June, there just isn’t enough inventory to meet the demand. 

Supply has been very low and demand is very high. We know that this combination drives up housing prices. In 2020, there are 22% fewer housing starts. At the same time, our population is growing. Millennials, now the largest population in the U.S., are forming households and looking to buy houses.

Many markets continue to see home prices rise, while markets like Manhattan saw a big drop. No doubt, due to how hard it was hit by the Coronavirus. 

U.S. Population Growth Rate

Between 2006 and 2016, there were 24 million new American’s. The population of the U.S. has grown since the last recession by over 25 million people.  Despite massive job growth, our workforce is actually shrinking and the U.S. birthrate is at a 30-year low. Although we have a growing millennial population that is entering the workforce and forming households, there’s an even greater number of Baby Boomers that are retiring. In fact, around 10,000 baby boomers are retiring every single day in America.

What is Household Formation Growth?

Household formation growth is an estimate of the future number of households expected to be formed. This is calculated based on expected population growth and the rates at which different age (i.e. Millennials) and ethnic groups form households / buy homes. Population growth is predicted by natural increase, migration and jobs.


Projected Household Growth by Region 2016-2026

#3: Many Tenants are Still Paying Rent But It May Not Last

As of July 27th, the multi-family rent payment tracker showed 93.3% had paid. This is a noticeable decrease compared to last month where 94.7% of rental payments were made. In July of 2019, 95.3% of tenants paid rent. 

Most tenants have been able to pay their rent throughout the Coronavirus pandemic, thanks to more unemployment income. But with renters no longer getting that extra income and the government still unable to decide on the next stimulus package, there will likely be a lot of people who can’t afford rent. 

How the next few months are going to look is anyone’s guess. But if things continue as they are, more and more unemployed American’s are going to have a difficult time affording their rent.

Does it Still Make Sense to Be a Landlord in 2020?

Rental property owners should be aware that oversupply of housing is not a risk–nationally or locally. More and more people are renting instead of buying homes. As such, landlords should likely  experience more demand for their rental properties. 

US Single-Family Residential Permits 2020

#4: Economy Continues to Suffer But Businesses Begin to Re-Open

Another housing market prediction for 2020 and 2021 is that the economy will continue to suffer, but businesses will begin to reopen (and they already are!). Overall, retail and food spending has been down since January, which is a direct cause of the pandemic and subsequent economic slowdown. But in May and June, spending actually went up 18.2% and 7.5%, respectively. 

People are still buying things, just in a different way. Instead of going out to dinner, they’re getting take out from local restaurants and ordering packages and groceries online. Some industries are hurting while others are thriving. 

For example, at the onset of the pandemic, clothing retailers took a dive, and building supplies and home improvement stores spiked. 

More businesses are beginning to open across the country. And now we are seeing some of these retail industries start to recover, some more quickly than others. 

#5: Consumers are Buying New Homes Right Now 

One of the reasons we think new construction home sales might be up is because there aren’t enough existing homes for sale. This is especially true for single-family homes. According to Meyers Research, these are the top reasons people are buying new homes right now: 

  • Mortgage rates are low, which is helping with affordability
  • Low supply of existing homes 
  • New homes are perceived as cleaner and therefore safer from COVID risks
  • Working remotely gives people options to live further away from big cities, where single family home prices are often the most expensive

These research findings support the trend that people are moving out of cities and into the suburbs. The markets with strong migration or population growth have seen the biggest increase in new home sales. The markets with the highest new home sales are Raleigh, NC, Cincinnati, OH and Tampa, FL. This is interesting because Florida has been hit pretty hard by the pandemic, yet we are still seeing tons of new home sales. 

#6: Increase in Mortgage Defaults When Moratoriums Run Out

Infographic Highlighting Housing Market Predictions and Impact 6-11 from COVID-19

When the pandemic hit, the government-issued CARES Act put moratoriums on federally subsidized mortgages, allowing borrowers to put off payments without penalty. This has worked as a short-term solution, but with the Coronavirus still spreading across most of America, homeowners may be wondering if any long-term assistance is coming…  

Homeowners that aren’t able to gain employment after losing their jobs from COVID-19 may find it tough to make their mortgage payment when forbearance runs out. Especially now that the extra $600+ per week in unemployment income just ended on July 31st. This could result in a larger number of homeowners defaulting on their loans.

However, thanks to the lessons learned during the Great Recession of 2008, lending standards are much more strict. It’s a lot harder to qualify for a mortgage these days because banks need borrowers to be able to afford the payments. Go figure! 

The government controls 61% of mortgages through Fannie Mae and Freddie Mac. Because these are government-backed mortgages and their lending standards are higher, they present less risk. High-risk mortgages are also not around as much as they were 10 years ago. 

Delinquency rates on mortgages were at a 20-year low in February. When the pandemic hit and millions of people lost their jobs, “normal” life changed. We don’t expect foreclosures to reach levels anywhere near what we saw in the Great Recession of 2008, but there will likely be an influx of homeowners that will default on their mortgages and be forced into foreclosure.

We’re probably not going to see the full impacts of the pandemic on foreclosures for months or even years. But a recent study by CoreLogic showed that mortgage delinquency rates nationwide were 6.1% in April. This is the highest rate of delinquency we’ve seen in four years. 

There are approximately 4 million Americans that are participating in some sort of mortgage forbearance program. According to the Mortgage Bankers Association, loans in forbearance reached their highest of 8.55% in June, but went down to 8.18% in July. 

#7: Major Job Losses By Market

Since February, 12 million people have lost their jobs. Unemployment rates are down (2.2%) from May to June, but 11.1% of American’s are still without work. It’s not all bad news on the job front. Employment increased across almost all industries (except for government and mining). 

Job losses have varied around the country. The greatest losses have occurred in markets with high leisure, hospitality and retail employment. The five states that have seen the greatest unemployment rates are: Massachusetts, New Jersey, New York, Nevada, and California.  

Keep in mind that housing markets can’t be lumped together. Markets are different in every city and even vary from neighborhood to neighborhood. For instance, new home sales are up in certain markets located in some of the states hit hardest by COVID-19. Like Las Vegas, San Jose and San Francisco. Even though the economy is struggling, doesn’t necessarily mean home sales are.

#8: Declining Purchasing Power of the Dollar

Another prediction we have for the housing market is that the purchasing power of the dollar will decline. We saw this happen as money was poured into the economy with the CARES Act. Government stimulus checks, extra unemployment income, and money for businesses are all contributing to a decrease in the dollar’s value. 

What people tend to forget is that most of this is borrowed money and it eventually has to be paid back. As such, we’re seeing asset values and home prices increase as the dollar declines in value. In other words, real estate investors win because the value of home equity in the U.S. keeps going up with inflation. 

Individuals with low, fixed-rate mortgages should build equity fast as inflation eats away at your debt. The silver lining is that even with overall GDP down, residential real estate is up 21%.

#9: More New Renters Than Owners

This is one of the housing market predictions we originally made for 2020, and it still holds true today. Currently, about 32% of Americans are renters and 68% are homeowners. With all of the population growth mentioned above, we can expect the number of renters to continue to rise. This is even more true because of the huge millennial population that is also made up of mostly renters — many of whom actually prefer to rent because of the flexibility among other factors. As such, the rental market should remain strong in 2020 even in the midst  of COVID-19.

Infographic Highlighting Homeownership vs Rental Rates 2020

#10: Political Climate Remains Uncertain

While this may not seem like a housing market prediction, the political climate massively affects the housing market. With a presidential election looming in the coming year, many real estate investors wonder what role politics will play as we move into the second half of 2020 and the beginning of 2021. Historically, we’ve learned that regardless of who is in the White House, the housing market has pretty much stayed the same. Tax law changes are driving the ‘Ultra High End’ housing market, along with huge annual tax cuts mostly benefitting the top 20% of income earners. No matter what happens in November, we don’t expect politics to have too much of an affect on the real estate market.

#11: Tariffs Should (Hopefully) End

And our final housing market prediction is that tariffs should hopefully end. The tariffs against China increased from 10 percent to 25 percent in May of 2019 on about 500 items involved in new home building and renovation. The U.S. and China are still trying to negotiate a new deal to stave off tariffs–but it’s taking longer than expected. If an agreement is reached, the cost of home building materials should come down on the following items:

  • Appliances
  • Nails
  • Lighting
  • Laminate
  • Tile
  • Cabinets
  • Other common finishes for housing made with aluminum, steel and lumber

Want to stay up to date on the latest housing market statistics? Check out our real estate market pages or Redfin’s housing market hub.


Investor Questions about the 2020 Housing Market & Our Predictions

Question 1: Do you think the rents are getting paid because of the extra unemployment income? What happens when that goes away?

Yes, I think that is probably true for a lot of tenants. Multi-family renters that have lost their jobs may have more trouble affording rent without the extra unemployment income. Typically, single-family homes attract higher-income earners. Because COVID-19 has impacted lower-wage workers the most, renters of SFHs might still be employed and still able to pay rent. But we’ll see what happens…

Question 2: Can the increase of interest rates put the brakes on the economy?

When the Federal Reserve raises interest rates it’s for one reason and that’s to slow down the economy. We don’t foresee any rate changes to occur in the coming year, as suggested by the Fed Reserve. On the other hand, mortgage interest rates are more tied to fear or confidence in the economy. If there’s fear, more investors buy mortgage-backed securities because it tends to be safer, in this case mortgage rates can go down. When there’s a lot of confidence in the economy, more people tend to invest in the stock market. Because there’s less demand for mortgage-backed securities, rates usually go up. Most of the economists I’ve interviewed on the Real Wealth Show do not think that interest rates will go up, at least not for the next few years.

Question 3: The government can print money at-will but individuals cannot?

It’s a massive problem because the money we print is unregulated. It’s not sustainable in the long run as inflation continues to eat away at the value of a dollar. This is why so many investors are choosing to buy real estate because it’s a hard asset, so it has value that increases with inflation. If you have affordable housing, in a well-located area, is the best strategy. This is one of the reasons we’re building in Costa Rica, because it’s not dependent on the US’s economy. We have diversified by building in areas and countries that have low debt and are seeing growth.

Question 4: Experts are saying the big reason the next housing market crash will happen will be due to pension programs going broke. Do you agree?

Yes, there’s going to be a massive pension program problem in the future. This whole line of thought is with the belief that the government will take care of you and that it has unlimited amounts of money. And that rich people have unlimited amounts of money that can pay for everyone else. This is not going to happen. This country was built upon the notion that anyone can come and take advantage of opportunities to create wealth. With pension programs unable to pay out, many retirees won’t get the pensions they worked for. The key for real estate investors here is to look for rental markets with a growing population, job growth and appreciation potential. It’s important to position yourself financially for when the storm does hit.

Question 5: Are there still 1031 Exchange opportunities in California?
Yes, it’s a great time to sell your California property in exchange for a property in opportunity zones.

Question 6: When the recession comes, do you think Dallas home prices will fall?
I really don’t think so. There has been massive job growth in the Dallas real estate market. I don’t think they will increase a ton, but I don’t see them falling because housing prices were undervalued by 26% previously (before the boom).


Conclusion

The Coronavirus has taught us the hard lesson that things can change in an instant and it’s nearly impossible to make accurate predictions. While we don’t know what will happen during the rest of 2020, looking at past and current trends and data can give us a better idea. With all the changes in our nation’s economy and monetary policy, there is still a need for affordable housing across the U.S., offering opportunities for real estate investors to earn passive income, especially with interest rates so low.

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