Is the Housing Market Going to Crash in 2021?

Is the housing market going to crash in 2021? After a whirlwind year in 2020, real estate experts expect another record breaking year in 2021.

Is the Housing Market Going to Crash in 2021?

The housing market has shown some signs of slowing down after a record-shattering year in 2020, prompting headline writers to start sizing up the doom and gloom. Still, the question on everyone’s mind is simple: Is the housing market going to crash in 2021?

The good news: Not likely — most experts predict another strong year for buyers and sellers albeit without the wild swings we saw this year. Lawrence Yun, chief economist of the National Association of Realtors, believes that 2021 will be another record-breaking year for residential real estate, while Rick Sharga, executive vice president of RealtyTrac, sees foreclosures rising to perhaps double normal levels – a far cry from the Great Recession foreclosure highs ten years ago.

Mortgage Rates and Home Prices in 2021

Ultra-low mortgage rates continue to surprise – on the downside. Mortgage rates hit a 14th record low in the first week of December with the 30-year fixed mortgage rate dropping from 2.72 percent to 2.71 percent. But Freddie Mac warns in their report that, “record low supply combined with strong demand means home prices are rapidly escalating and eroding the benefits of the low mortgage rate environment.”

Yun and the Realtors expect mortgage rates to bump up slightly in 2021, and perhaps go a bit higher in 2022, depending on the level of inflation and Federal Reserve Bank actions.

CoreLogic predicts the 30-year fixed-rate mortgage loan will remain below 3 percent during early 2021 and average about 3.2 percent during the next three years. Home prices are forecast to slow to an average increase of 2.5 percent per year during the next three years (compared with 4.8 percent per year in the decade prior). From October 2020 to October 2021, CoreLogic forecasts home prices to slow to a 1.9 percent increase. That’s far less dramatic than the 7.3 percent increase we saw year over year in October 2020 and the lowest increase in annual home prices since March 2012.

Meanwhile Michael Fratantoni, the Mortgage Bankers of America’s Chief Economist and Senior Vice President of Research and Industry Technology, says 2021 could be the best year ever for mortgage lending, as roughly 20 percent of homeowners with mortgages could benefit from ultra-low interest rates.

How COVID-19 Will Impact the Housing Market in 2021

CoreLogic expects the number of new and existing homes listed for sale to rise as a coronavirus vaccine becomes widely available, helping to ease price appreciation, however, there is one caveat. Most communities should see gradual price growth, but some metros, particularly those that have been hit especially hard by the pandemic recession, will likely have price declines. RedFin has also called attention to this trend, noting that home sales were up 54 percent in low-intensity coronavirus counties in November outpacing the 45.1 percent growth in counties with high concentrations of COVID-19 cases.

3 Housing Market Trends for 2021

These are the top three housing market trends CoreLogic expects to see during the next three years:

Low mortgage rates
Growing numbers of first-time buyers
Gradually increasing home values

Mortgage rates won’t continue to hit a rash of new record lows, but they are predicted to stay below or just above 3 percent in the next three years. Most homeowners can expect to see gradually increasing home values, but as we mentioned before, home price appreciation might depend on how the region fared during the COVID-19 pandemic. Lastly, CoreLogic predicts that Millennials will add substantial demand for housing over the next three years as the largest numbers of them are aged 28 to 30 and the median age of recent first-time buyers is 33. CoreLogic expects turnover, home sales relative to the housing stock, in 2021 to 2023 to be above the average annual turnover rate of the prior two decades.

Yun says he’d like to see home values continue to appreciate, but more slowly, so that affordability for those Millennials and Gen-Z buyers isn’t negatively impacted.