Not in the 2020 dumpster fire: home sales
While New Year’s Eve celebrations were smaller and looked different, Americans’ excitement to close out the chapter of one year and turn the page of a new one has never been greater. 2021 is a year of many unknowns after surprises around every corner in 2020. But one thing is sure: The housing market was hot in 2020, and the industry expects it to remain strong in 2021, fueled by historically low rates and a shift in lifestyles.
Expect mortgage rates to remain low. 2020’s historically low 2.7%, 30-year-fixed mortgage rates will inch up to 3%, according to a study released by Redfin. With slightly higher rates, bidding wars will subside. But the pace of the market will remain strong. The edge of urgency will dull.
Refinancing will remain popular, as well. Many in the industry had a knee-jerk reaction to the Fannie Mae “refinance fee” that took effect Dec. 1, 2020 — which automatically adds 0.125% to most refinances — and thought that would slow the pace of refinancing. The fee was so low and the market was so strong that many lenders could absorb the cost instead of the refinancers, and the pace did not slow. Even with the new fee, refinancing will remain a popular option for homeowners who have not already refinanced.
This year will see a record number of homebuyers. The homeownership rate will reach 70%, according to Redfin, a level not seen since 2005. Stay-at-home orders have changed the way companies and employees operate, with many shifting to permanent remote work. Lifestyle changes and low rates will keep the market turning quickly but not equally for all home types. Larger homes with more space in smaller cities and rural areas will sell faster than smaller, urban dwellings.
Many renters who could not afford to buy in high population centers where their employers’ offices were located, like San Francisco and New York, are buying in affordable markets. The rise in “Zoom Towns” is a new phenomenon breathing life into some smaller towns in beautiful places with low COVID-19 rates.
The pandemic lifestyle demands more living space, especially if you live in a multigenerational household. Parents need their space to work. Kids need their space for playtime and school. The family may need space for activities, like gardening or exercising. As the population shifts and settles into these new lifestyles, homes will come and go on the market quickly.
Home inventory was already low going into the pandemic in 2020. It was down in 2019, too. Inventory levels and time-on-market reached new lows in 2020 and are expected to remain low in 2021. With low inventory levels, we can hope for more new homes to be built in 2021 than previously expected. Low rates and a decrease in commercial construction have driven down construction costs to the point where it is affordable for developers and individuals to build to meet demand.
Something uncommon last year that will persist into 2021 is the influx of investment property purchases. As more and more people opt to escape the four walls of their home, they are looking to retreat within driving distance of their house. Vacation homes have been moving extremely quickly. The nightly rental market is very hot right now. Consumers feel safer driving than traveling by air and staying in an Airbnb or VRBO instead of a hotel. In Arkansas, the Ozark Mountains — Ponca, for example — and towns like Hot Springs are seeing a surge in investment property purchases.
Tina Sewell is branch manager at Rock Mortgage in Fayetteville. Rock Mortgage is a division of Bank of Little Rock Mortgage. The opinions expressed are those of the author.