June 08, 2021

My prediction of the 2021 housing market

I'm going to give you my prediction of what's going to happen in the last half of 2021. The real estate market comes down to many other markets, simple economics. The two things that affect price are supply and demand. Now, in order to make a prediction of what's going to happen in the future, we have to look at some of the factors that affect supply and demand.

Supply and Demand

Let's start with demand. The biggest factor that's going to affect demand obviously like general economic conditions. Assuming the economy stays in a relatively similar situation the biggest factor that it's going to affect demand is going to be interest rates. Obviously if interest rates go up, it's going to make buying a home a little bit more difficult. When they stay low, it increases demand, right? So it's an inverse relationship. Now, right now, interest rates are very, very low. In fact, they're almost at historic lows, so there's really only one direction they can go, which is up. As interest rates go up, we expect demand to go down. Now let's look at supply. For supply, right now we have super low supply as well. In fact, there are actually 60% less homes on the market right now than there were this time last year. So supply is very low. That's where it makes sense that prices have skyrocketed. High demand, low supply.

Now what affects supply? You have resale, residential resale. People who own a home who put their home on the market. That's part of the equation. The other part of the equation is new construction. Let's look at residential resale. Right now, we have very, very low inventory. Not a lot of people are putting their home on the market. Obviously that can change. The other half of the equation when it comes to supply is new construction. We're also seeing a slowdown in new construction and to make things kind of tricky, the price of building materials has actually gone through the roof since COVID started, since the beginning of 2020. In fact, a good example of that is the price of lumber has more than doubled since the beginning of 2020. Let's look at the factors. We expect demand to probably go down a little bit as interest rates come up, but we also expect supply to go up. That would make you think that prices are going to come down, right? My prediction is actually different.

Interest Rates

I think that prices are going to continue to go up. Why? One, even if interest rates go up there's still a lot of buyers that are looking for a home that are motivated right now. The gap between supply and demand right now is still very, very big. Interest rates have to go up a lot and a lot of people have to get out of the buying market in order for it to close that gap. At the same time, we would need a lot more homes to come on the market to feed that demand. My prediction for the end of 2021 is that prices are going to continue to increase. I think the rate of increase might slow down a little bit because the gap between supply and demand is so big right now that it's going to narrow, but I don't think it's going to narrow enough for prices to go down.

Wrap Up

My advice, if you're thinking about buying a home I personally would do it right now. Because I think in six months, when you look back, you're going to be happy with the amount of equity that you gained in that time. I'm Jeremy McHone with the Whissel Realty Group and that's my bold prediction for the last half of 2021.

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