Though across the nation this past year, much of our economy contracted, the housing market remains remarkably strong.
But what does the future hold? Will this good news continue, or are we headed for a fall?
When COVID shutdowns began in March of 2020, real estate agents scrambled to respond, and to assist their clients in deciding whether or not to put their home on the market. It was a time of doubt for consumers and agents alike.
After a short period of inaction and uncertainty, the housing market responded with a roar! Overall, in the United States, homes ended up increasing 13.4% over the previous year. And nationally, days-on-market (the amount of time from a home’s first day on the market until the day an offer is accepted by the seller) decreased by 13 days from 2019 levels.
A year later, sellers are wondering whether these positive trends will continue. If you currently own your home, should you take advantage of one of the strongest sellers’ markets we’ve ever seen? If you’re a buyer, is it better to purchase now before things become even more advantageous for sellers, or will jumping in now mean that you are overpaying for a home?
Let’s take a look at some common questions we’re hearing from our clients that directly impact these issues.
IS TODAY’S MARKET DIFFERENT THAN THE ONE THAT CAUSED THE REAL ESTATE MARKET TO MELT DOWN IN 2008?
When the pandemic began, fears of an economic recession were top-of-mind. Many consumers clearly remembered the economic recession and the mortgage meltdown that followed in 2008.
However, the 2008 recession was triggered by very different things than have led to our current downturn. While housing was a huge part of the problem in 2008, this time there’s actually a great deal of good news around housing. Historically, housing prices remain steady in the face of recessions because homeowners stay put. Simultaneously, investors put their money into real estate while they ride out uncertainty in the stock market. And that’s the case today as well.
Lending institutions learned from the problems of 2008. Today, banks are better funded, and homeowners have more equity in their homes. In addition, industries quickly pivoted to work-from-home models – and this meant that widespread job loss-related foreclosures have not materialized. Stimulus from the Federal government in the form of stimulus payments and the Paycheck Protection Program also softened some of the worst effects of the shutdown.
AREN’T WE HEADED FOR A REAL ESTATE “BUBBLE”?
Real estate bubbles occur when there is rapid (and often unjustified) increase in home prices. Often these are triggered by investor speculation. The term “bubble” is used because the market is filled with “hot air” and can therefore “pop” – leading to a swift drop in the values.
However, the current rise in home values is based on the combination of two things: 1) historically low interest rates, and 2) low inventory (not enough homes available to meet the demands of buyers). Let’s look a little closer!
Low mortgage rates. According to Freddie Mac, rates are projected to remain at or near their current low levels in 2021. Low interest rates allow a larger pool of buyers to venture into the housing market and help keep homes more affordable.
Low inventory levels. This is basic supply-and-demand economics. The size of the buyer pool far outstrips the inventory of available homes to purchase in many markets, including the greater Seattle area.
AREN’T SOME MARKETS, AND SOME MARKET SEGMENTS, LOOKING WEAK?
In many parts of the country, real estate professionals told stories of migration from attached home communities (condos and townhomes) and small single-family homes in high-priced urban areas – trading them for more square footage, and more open space in the suburbs and rural areas. Much of this appeared to be tied to work-from-home policies – many of which have become permanent at some of the nation’s largest companies.
Of course, many speculated that cities would become ghost towns – and that the condo market in particular would crash. Based on what we’re seeing so far, this isn’t happening.
As vaccinations have gone in arms, the population is returning to urban centers. Renters are finding discounted rental rates and more inventory. And buyers who were previously not willing to look at attached dwellings, responded to a lack of that inventory by considering condominiums and townhomes, keeping those segments of the market healthy.
HOW WILL THE BIDEN-HARRIS ADMINISTRATION AFFECT THE REAL ESTATE MARKET?
Only time will tell! However, there are many positive signs based on projected housing policy. Some investors are concerned about possible changes to 1031 exchanges, there is also a proposal for a $15,000 first-time homebuyer tax credit which could help stimulate the market.
SUMMARY
According to most indicators, the news when it comes to real estate looks very positive for the rest of 2021 (and possibly beyond!). Between pent-up demand that’s not being met, consumer-driven policies, and continued low interest rates, homeowners should see increased equity in their homes.
Low rates will allow buyers to continue to enter the market. In addition, work-from-home policies should offer a boost to many market segments and to a wider range of geographical locations, both now and in future years.
All this bodes well for the real estate market.
GOT QUESTIONS? WE HAVE ANSWERS!
. . . or at least can find it! Much of the information for this article was drawn from well-respected national sources. However, real estate is local (and sometimes hyper-local!). As experts in the Auburn, Kent, Covington, Maple Valley, Renton and surrounding markets, we’re the best source to help understand what’s happening in your neighborhood.
Reach out today with your questions and comments – we’d love to hear from you!
