The COVID-19 pandemic had a significant impact on the real estate market and a number of trends emerged during 2020, including:
- Housing inventory declined up to 39%
- The typical home spent a median of 65 days on the market between January and October 2020, two days less than the previous year
- Housing prices through October 2020 were up nationally by an average of 3.4%, but only up by 1.4% in top 50 metro areas
- Larger rental units were slowly returning to pre-COVID prices, while studios continue to experience decline
- The largest generational group (25%) of buyers were older millennials
In order to help real estate agents better prepare for a successful 2021, we’ve assessed data to break down the most relevant real estate trends and housing market predictions.
3 Real Estate Trends in 2020
A number of trends emerged across the real estate industry in 2020. Below, we expand on real estate trends from 2020 and look into how housing inventory and prices compared to the previous year as well as the demographics of home buyers and sellers.
Trend 1: Housing Inventory Declined up to 39%
National inventory has been on the decline since July 2019. On July 6, 2019, inventory was down 0.7%, and by February 15, 2020 that decline had increased to 15% compared to the previous year. By mid-November 2020, active listing count had declined to 38.5% compared to the same time last year, a slight improvement to the steepest decline of 39.4% seen in September 2020. (Realtor.com, “Real Estate Data,” 2020) Inventory has been tight due to increased buyer demand as well as low mortgage rates. (Alcynna Lloyd, "Is the housing market heading toward an inventory downturn?” HousingWire, Oct. 8, 2019)
In the 50 largest U.S. metro areas, housing inventory declined by 38.6% in October compared to the previous year. Inventory declined in all 50 metro areas, but the largest declines were seen in Riverside (54%), Providence (52%), and Baltimore (51%). Inventory declined the least in Las Vegas, NV (7.8%), New York (6.1%), and San Francisco (4.2%).
Trend 2: Housing Prices are Up, While Rental Prices are Down
The housing and rental markets were impacted in unique ways in 2020, especially California's rental market. Prices continued to rise in the housing market, while demand, and therefore prices, declined in the rental market.
Prices of homes for sale are growing overall, but slower in metro areas. The market experienced price declines in April and May, but overall 2020 prices through October were up nationally by an average of 3.4%. From January to October 2020, prices across the top 50 metro areas were only up 1.4% compared to the same period last year, and the median listing price was $404,443.
Nationally, the typical home only spent a median of 65 days on the market between January and October 2020, which is two days less than October 2019. Homes in the top 50 metro areas spent a median of 53 days on the market between January and October 2020 compared to 56 days in 2019. Record-low mortgage rates combined with reduced inventory are keeping buyer demand, and therefore the real estate market, strong. (Marco Santarelli, “US Housing Market Forecast 2020 & 2021: Crash or Next Boom?,” Norada Real Estate Investments, Dec. 4, 2020: https://www.noradarealestate.com/blog/housing-market-predictions/)
As of October 2020, national rent prices across the 100 largest counties were still below pre-COVID rates. Larger units are slowly returning to pre-COVID levels, while studios continue to experience decline. Metro areas in particular have seen a decline in rent prices due to decreased demand.Workers that were laid off due to the pandemic may no longer be able to afford high rent prices, and some people who have shifted to working from home may have left to less densely populated areas due to safety concerns and a desire for a more livable space.
This appears to be in the case in America’s largest and most densely populated cities, such as New York, Chicago, and San Francisco. (Cynthia Paez Bowman, “Coronavirus Moving Study,” MyMove, Nov. 24, 2020: https://www.mymove.com/moving/covid-19/coronavirus-moving-trends/)
Below is a snapshot of October 2020 rental prices in the top 20 largest counties by unit size.
In order to have success in the rental market during COVID-19, agents should utilize technology to seamlessly show listings, meet with clients, and handle transactions virtually.
Trend 3: Buyer and Home Purchasing Trends
The largest generational group (25%) of buyers were older millennials (30 to 39 years), followed by buyers 40 to 54 years old who made up 23% of total buyers. Thirty-three percent were first-time home buyers. (National Association of REALTORS® Research Group, “2020 Home Buyers and Sellers Generational Trends Report,” March 2020: https://www.nar.realtor/sites/default/files/documents/2020-generational-trends-report-03-05-2020.pdf)
The first step taken across all generations when searching for a home was to look online for properties, and the most important website features to buyers were photos and the property description. Finding the right property was considered the most difficult step in the home buying process. To sell for higher and faster, make sure you follow these house staging tips.
With millennials making up the majority of homebuyers, and the continued presence of the pandemic, real estate agents should consider making the best possible impression of their listings online. This means using high-quality photos and potentially offering a digital tour. In fact, 3-D home tours, the use of which skyrocketed due to the pandemic, will likely continue to grow in popularity.
Nearly all buyers (89%) purchased their home through an agent, most only interviewing one person before selecting them as their agent. Factors including experience, reputation, and the agent being a friend or family member were what influenced buyers' selection of agent the most. Buyers also valued agents with the following skills and qualities:
- Honesty and integrity
- Knowledge of purchase process
- Knowledge of real estate market
- Communication skills
- Negotiation skills
- People skills
- Knowledge of local area
- Skills with technology
Most buyers either found an agent through a friend, neighbor or relative (41%) or had previously worked with them to buy or sell a home (12%). This is why it’s important for real estate agents looking for new leads to reach to people they know and nurture their professional relationships.
Additionally, According to Guy Gal of Side Real Estate, despite over 50% of real estate transactions currently being handled by part-time agents, there is a growing demand for experienced agents who can perform at a high level. It’s possible that as clients become more savvy, fewer transitions will be held by part-time agents.
Housing Market Predictions 2021
Fannie Mae predicts a 15% decline in total home sales in 2021. With the continued presence of the pandemic, people may hold off on selling their homes as they’re reluctant to open their homes to real estate agents and prospective buyers for safety reasons.
Prices are expected to continue to rise, but not at the current rate. Freddie Mac (OTCMKTS: FMCC) and the Mortgage Bankers Association (MBA) predict home price growth in the 2.0% range. (Aly J. Yale, “Home Prices and Housing Market Predictions for 2021,” Millionacres, Nov. 19, 2020: https://www.fool.com/millionacres/real-estate-market/articles/home-prices-and-housing-market-predictions-for-2021/) There are also likely to be more foreclosures in the future as mortgage relief options run out for homeowners. ((Ibid.))According to members of the Forbes Real Estate Council, some additional trends that may impact the housing market in 2021 include:
- Migration from cities to the suburbs: With more people working remotely, there is an increased exodus to more spacious, less expensive areas.
- Increasing demand for more space: Due to spending more time at home, buyers want more space so they can live, work, and play more comfortably.
- Higher inflation rates: The Federal Reserve’s decided to move to an average inflation rate target of 2.0% rather than a precise target.
- Higher interest rates: Banks will likely increase interest rates for a 30-year fixed rate.
- More homeowners: The combination of lower interest rates and desire for stability may lead to more buyers.
- Increasing number of defaults and foreclosures: As a result of the pandemic, there’s likely to be an increase in the number of homeowners who cannot pay back loans.
- Alternatives to security deposits: In order to help Americans who may have trouble paying a large deposit upfront and give more financial protection to landlords, there may be a shift to deposit alternatives such as surety bonds.
With a constantly changing world and landscape for real estate agents to navigate, and difficult real estate questions being asked, it can become overwhelming to know where to focus and what to look out for. RentSpree makes the tenant application and tenant screening process fast and easy in order to help simplify the process for busy agents.