COGNITION Hot Take: 2021 Housing Outlook

The housing market is expected to continue its rapid growth in the first half of 2021, with a possible slowdown in the second half of the year.

According to COGNITION Smart Data, Green Builder Media’s suite of market intelligence services, the housing market is expected to continue on its growth trajectory in 2021. 

Housing economists project a 4 percent growth rate from 2020 to 2021.  This represents an approximate 13 percent increase in single-family home starts in 2021, or 1,075,00 seasonally adjusted starts.

pandemic chartStrong pre-sales and pipeline activity is ensuring that the market remains strong for months to come.  According to Doug Duncan, Fannie Mae’s chief economist, “Sales are increasingly being driven from homes not yet under construction. The share of homes sold but not yet started rose for the third straight month and now represents the highest share of total sales since 2005, while the number of fully completed homes sold hit the lowest level since the COVID-19-related shutdowns this past April.”

Factors driving the housing market include:

  • Low interest rates (dropped to 2.65% in December).
  • Solid demand and desire to own homes for enhanced safety and security.
  • Spending channeled from travel, restaurants, and non-essential items to essentials, including home investment.

Factors that are limiting housing market growth include:  

  • Rising lumber prices.
  • Material shortages.
  • Labor issues.
  • Slow employment recovery.
  • Still-fragile economy and low consumer confidence.

A recent Green Builder Media survey indicates that builders feel good about their opportunities in 2021, driven primarily by significant backlogs. However, they’re worried about running out of lots, rising land prices, and soaring infrastructure costs, namely water tap fees.

While the brisk pace of sales is expected to continue into the first half of 2021, keep a wary eye open for slowdowns in the second half of the year as the market bumps up against inventory, lot supply, and affordability limits.

Foreclosures may also become an anchor on the housing market: Approximately 11 million households fell behind in payments in 2020 and 2.3 million loans are currently at least 90 days past due, yet, overall foreclosures were down 80 percent in 2020 (from 2019) because of pandemic-related moratoriums.  It’s likely that we’ll see a wave of short sales and foreclosures in summer 2021, which will cause housing supply to overwhelm demand, dropping prices and cooling off of real estate markets from coast to coast.

Caption: The housing market remains bullish, with buyers often facing competing bids in hot markets.

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