Though indications point to an even stronger market U.S. real estate market in 2021, and most experts agree this year will see growth in both home sales and prices, there are a few unknowns that may threaten this market. After all, the housing crisis of 2008 caught many people in and outside the industry off guard, and the catastrophe came right at the end of the kind of buying frenzy we are experiencing today.
Truthfully it would take a perfect storm of adverse effects to cause a shift into a buyer’s market this year. But if any changes happen more rapidly than expected, we could be surprised and unprepared once again. Now let’s take a look at some of the factors that may lead to this potential shift.
Rising interest rates
Historically low interest rates are still a driving factor in the U.S. housing market. At the beginning of the covid-19 pandemic, the Fed dropped rates to positively influence the market. Though this is not a new practice, it worked like gangbusters on the 2020 housing market. It’s unlikely we would have seen such monumental sales and price figures without this federal intervention. But now, as the U.S. economy starts to recover, we may see these rates rise back to the pre-covid levels. Granted, even the pre-covid numbers are historically low. However, this shift may drastically slow down the home buyer feeding frenzy the market has experienced over the past 12 months.
Expiration of federal aid
Another catalyst for a 2021 market shift could happen if and when federal aid expires. In March of 2020, the U.S. government enacted the CARES ACT which provided unemployment benefits, the stimulus for citizens, paycheck protection for businesses, and required lenders to offer mortgage forbearances to homeowners. Recently this aid has been extended. However, at some point, the program will come to an end and we may see some big changes as a result. Some homeowners may fall behind on their mortgages, employees might not have jobs to go back to, and even more, businesses may have to close for good. If any of these happen on a large scale, the U.S. housing market will experience a major shift.
Increased inventory
The basic concept of supply and demand is also a driving force behind the current housing rush. The market has not been able to pick back up the inventory needed to overcome the dramatic dip that happened at the beginning of the pandemic. As more and more buyers have come into the market, the issue is even more severe. However, new home builders are now producing in record numbers, interest rates are on the rise which takes some buyers out of the market, and some homeowners may have to sell once forbearances are lifted.
Inventory is the number one indicator that distinguishes a buyer’s market from a seller’s market. If the market is flooded with inventory as a result of the factors mentioned above, we will find ourselves in a buyer’s market.
The shift can happen faster than we think. It’s important to keep an eye out for these indicators. Once the for-sale signs start going up, it’s too late. Stay informed by getting on a loan officer or mortgage broker’s email list, read online financial publications and updates daily, and have a real estate agent keeping you up-to-date on sales in your neighborhood.
