Posted on January 12, 2021 in Buying Advice, Investing, Market Analysis, Selling Advice

An aerial view of a neighborhood with houses and cars on the roads

While it saw its fair share of problems, the US housing market remained relatively stable during 2020. With a Coronavirus-induced recession on the horizon, there were fears the market would crash much like it did in the Financial Crisis of 2007-08. However, given that the ongoing recession isn’t as strongly tied to the real estate market as the last one, the housing market was able to perform well. You can read more about this by clicking here.

With 2020 finally behind us, the big question is, which housing market trends can we expect in 2021? Let’s find out.

1.   Demand for City Homes Could Surge

In June 2020, Zillow reported that over 2.7 million adults moved back in with their parents or grandparents as the Coronavirus pandemic spread. Altogether, 32 million adults were living with grandparents or parents during the pandemic.

With the Coronavirus vaccine distribution underway, Zillow has predicted that many people who left cities during the pandemic will make a return. Local economies opening up again are likely to encourage people, as well. Besides this, many young adults are expected to move to cities as they graduate and enter the job market.

These factors can contribute to an increased demand for urban housing in 2021.

2.   Mortgage Rates to Remain Low

As per a chief economist at realtor.com, mortgage rates are likely to remain stable in 2021. They may show a minor increase and rise from the current 2.71% to 3%.

The Federal Reserve has also indicated sticking to the current low interest rate policy for the next 2 or 3 years. Another chief economist suggests that if vaccine distribution helps improve the economy, mortgage rates could reach 3.4% by the year-end.

Either way, mortgage rates will still remain low compared to the historical average, which is good news for buyers. Homeowners with a mortgage can also take advantage of the low rates and refinance their home loans.

3.   Home Sales to Rise Further

2020 was marked by unpredictability, with job uncertainty and a declining economy forcing many people to delay buying a home. Home sales still remained relatively high, but they are expected to rise further in 2021.

According to a chief economist at realtor.com, home sales are expected to grow by 7%, and home price levels are to increase by 5.7%. Low inventory levels are expected to increase home prices, too. There were less than 500,000 homes available for sale at the end of 2020. The imbalance in supply and demand can push home price levels to rise.

Besides this, Millennial and Gen-Z buyers could play a more prominent role in the US housing market. However, the rapid increase in prices may prevent first-time buyers from entering the market.


Zillow further predicts housing market trends for 2021 with respect to home sales and has suggested that sales will happen quickly and above the list price in spring. Once again, job certainty, low mortgage rates, and recovering economies are likely to support an increase in homeownership.

Due to these factors, Zillow has forecasted an annual growth of 21.9% in 2021, with 6.9 million homes getting sold! This would mark the largest one-year increase in the US housing market since the 1980s.

4.   More New Homes to Be Built

As per Redfin, we can expect home construction to increase in 2021, with more new homes being built since 2006. In 2020, construction of new homes increased during the pandemic and building permits increased by 21% from September to November.

The increase in home construction was attributed to a lack of competition between home builders and office builders for materials, labor, and land. The low interest rates also enabled home builders to borrow cheaper loans for home construction projects. Current low inventory levels and high demand for new homes is also an important consideration.

These factors are likely to propel home construction in 2021.

5.   Digital-First Experiences to Gain Precedence

Due to social distancing measures and lockdowns in place, the home shopping experience underwent a series of innovations. These included 3D home tours, virtual tours, and self-touring technology being used to tour homes.

These technologies enabled the real estate market to adapt quickly to the challenges posed by the pandemic and continue operating. As per Zillow, we should see a marked increase in the adoption of such technologies in 2021. Digital-first experiences could be considered the new standard for home buyers and sellers.

These technologies offer a number of advantages. They help sellers connect more quickly with buyers, speed up transactions, and help manage home inventory levels. Moreover, prospective buyers no longer have to wait for the weekend to tour open houses, and home purchases can be closed with the help of a remote notary.  

According to a Zillow survey, 72% of real estate agents expect to use virtual tools after the pandemic ends. 43% of people also said they are likely to use virtual processes and tools to sell homes in the future.  

6.   Homeownership Rate Could Reach 70%

Besides the above housing market trends, Redfin has also predicted the homeownership rate to rise to 70%. This would be the first time the homeownership rate would increase over 69% since 2005.

In addition to the factors mentioned earlier, the increase in homeownership can be attributed to remote work becoming increasingly common. Previously, people had to live in expensive cities to be close to work. However, the normalization of remote work offers prospective home buyers the flexibility to buy a home in a more affordable place.

Furthermore, this shift could force landlords in urban areas to lose tenants. As a result, they may consider selling their investment properties, giving city-dwellers the chance to buy their first home.

Conclusion

A beautiful neighborhood with homes and green fields in the background

The US housing market is expected to witness a significant amount of growth in terms of home sales and home construction. With the economy in recovery and mortgage rates remaining low, it is a great time for buyers to invest in a home.

If you are a resident of Indianapolis and want to take advantage of these housing market trends, I can help you out. As a real estate agent operating in the Greater Indianapolis area, I can assist you in buying, selling, or investing in real estate and make the most of this opportunity.

Ready to buy your dream home? I will help you find a home that you’ve always wanted. To get in touch, call 317-379-1758. You can also email me at [javascript protected email address]

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