News: The Short-Term Real Estate Outlook After the COVID-19 Boom
Real estate boomed unexpectedly in the face of COVID-19, but will it soon bust?
Contributing Writer at Tally
October 8, 2021
The early phases of the COVID-19 pandemic were rough on the financial, job and housing markets. However, as 2021 progressed and ideas of normalization began, consumer spending and the stock market started to grow.
With interest rates low and positive consumer sentiment, the demand for housing restarted too. This resulted in a nearly 20.11% year-over-year house price index increase, 36% more homeowners putting their homes on the market, and a home inventory shrinkage of 53%, which was fueled partially by material shortages.
As we proceed toward the end of 2021, many homeowners and potential homebuyers wonder what will happen to the real estate market in the near future. Will prices continue to climb, remain the same or are we headed towards a crash?
Let’s see what the experts have to say.
Prices will cool, but increases will continue in 2021
According to economists at Fannie Mae, Freddie Mac, the Mortgage Bankers Association and the National Association of Realtors, the median house price will continue to rise 3% to 8% through 2021. This is a drop compared to the 12.9% increase that began in December 2019 and ran through 2020, but it will continue pushing prices up through the year.
Despite the sharp decrease in pricing growth, experts don’t anticipate a crash in home prices like we saw in 2008.
Less competitive housing in 2022
Housing inventory is back on the rise from severe lows, meaning buyers will have more options. However, this will likely not result in a buyer’s market, where buyers have more control over the pricing. Instead, we’ll probably still see multiple buyer bidding wars.
Skylar Olsen, a senior director and principal economist at mortgage startup Tomo and a former Zillow economist, told Fortune, “I would hesitate to ever call a market that we would see this decade a ‘buyer’s market.’”
This doesn’t mean the seller’s market will stay as strong as it has over the past year, according to Nicole Bachaud, an economic data analyst at Zillow. She expects it to balance out slightly in 2022.
Prices are expected to rise in 2022
Though the competition will cool by an inventory increase, experts anticipate a continued increase in pricing. According to CoreLogic, home prices are expected to continue rising by 2.2% between August 2021 and 2022. Zillow is even more aggressive in its predictions, saying it expects home values to continue to grow by 12.1% by the time we reach July 2022.
This sounds like a huge increase, but it’s actually timid compared to the predicted 20.3% home value increase Zillow predicts by the end of 2021.
The big question is whether this slowdown in value will attract more buyers and start a new inventory shortage. That is what remains to be seen as time passes.
Predictions are just predictions
While expert opinions and predictions can be helpful in the real estate market, they aren’t always accurate. No one could have predicted the housing surge COVID-19 brought about, and experts could be off-track on these predictions too.
Plus, there is still the variable of interest rates. Currently, the Federal Reserve continues buying mortgage-backed securities (MBS) to keep interest rates low. Still, bond tapering — the act of slowing the purchase of MBS — could send mortgage interest rates back up and slow homebuying.
Before jumping into the housing market, speak with a financial advisor and a real estate professional to get a sense of the market in your area. This will help guide you in the right direction.