5 Housing market trends to watch in 2021
1. Demand for housing will continue to outpace supply
America doesn’t have nearly enough housing.
In early 2020, estimates put the national shortfall of homes at 3.85 million units. That’s big. According to Freddie Mac—a Government-sponsored enterprise responsible for improving access to credit for borrowers—the housing deficit is growing by 300,000 units per year.
There’s more: we’re currently experiencing a nationwide shortage of homes for sale. Months of supply, which measures how many months it would take for all the homes listed on the market to sell, is one measure of a well-functioning housing market. In a balanced market, months of supply ranges from 5-7 months. Months of supply of existing homes in the U.S. currently stands below two months.
What’s behind the crunch? On the demand side, record-low interest rates, strong buyer demand, and shifting demographics. On the supply side, increases in labor costs, land costs, and raw inputs are just a few of the many roadblocks.
2. More buyers will target homes further out
What’s the price of an orange? Whatever the market will pay. When orange prices surge, apples start to sound nice to some folks.
Home prices in major U.S. metros like San Francisco and Seattle have increased between 100%-150% over the last ten years. Enter pandemic. For some, it no longer matters whether they’re logging in from South Lake Union, SoMa, or Boise.
Cities like Topeka, Kansas and Hamilton, Ohio are even offering cash sweeteners to the tune of $10k or more to those willing to relocate.
Does this spell the end for major west coast metros? We don’t think so, but we expect to see an increase in housing stock turnover in many high-cost coastal areas in 2021.
3. The number of multi-generational households will skyrocket
Fancy sharing a roof with granny? You’re not alone. This year we’ve seen a tidal wave of family members opting to share a home, a mortgage, and cooking duties. Multi-generational households made up 11% of homebuyers pre-pandemic. Today, the National Association of Realtors® reports that the number has grown to 15% nationwide.
Of course, combining financial resources increases purchasing power and makes homeownership more affordable. But it’s not all about the money. In fact, our 2020 CoBuyer Survey found that over half of multi-gen buyers are driven by the social aspects of co-ownership. We also found that the majority had questions about the co-buying process, financing, legal issues, and risks involved.
Does a 30-year mortgage mean co-owning a home with family members has to be a forever thing? Not necessarily. Increasingly, relatives are turning to co-ownership as an alternative to renting before striking out independently. Frankly, we’re all about rotating dinner duty and taking the dog out at night.
4. Boomers will choose to age in place
Before the pandemic, more than 75% of American Boomers said they plan to age in place. Steadily increasing home prices and a global health crisis should cement, if not stoke, this trend further.
Why is this a big deal? The Baby Boomer generation comprises over one-fifth of the U.S. population, owns 54% of all homes, and holds the majority of the country’s wealth. In a chronically undersupplied housing market, it’s likely to put upward pressure on home prices in the years to come—particularly in coastal areas.
5. The savviest homebuyers will build wealth, quickly
The fundamental mismatch between housing supply and demand in many major metros around the country creates opportunity. Relatively speaking, larger homes with three or more bedrooms are underutilized and in greater supply versus smaller homes. Buyers willing to team up to co-buy, co-own, and cohabitate stand to benefit from:
- Housing economies of scale
- A relative value discount
It’s a compelling move for first-time buyers who have flexibility around their living situation and want to start building equity.
Curious about co-buying?
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