COVID-19 brought about unsavory economic changes in many industries, and real estate was no exception. The economic uncertainty, stay-at-home orders, and health concerns created an imbroglio for real estate investors as well realtors in the first half of 2020. But the way real estate rebounded at the start of the second half of 2020 was surprising. This residential real estate market Covid-19 update will delve into the positives and the negatives of Covid-19 on the US real estate market.
According to a survey by Real Estate Bees, 82.8% of realtors believe the pandemic opened up new opportunities for real estate. Led by historically low mortgage rates, a new wave of tech adoption, and an influx of first-time home buyers, activity in the third and fourth quarters of 2020 seemed enough to make up for the spring market shortfall. Zillow says a total of “5.64 million homes were sold in 2020, up 5.6% from 2019”.
One big trend that will affect the US housing market 2021 is the presence of the Covid-19 vaccine. This would lead to a bump in inventory as sellers regain confidence in the market. Experts predicting the impact of Covid-19 on the residential real estate market say that the fourth quarter highs of 2020 will likely continue in 2021.
Yet, towards the latter part of the year, we’ll probably see a rise in foreclosures caused by Covid-19 job losses. More than 2 million homeowners are likely to be seriously delinquent by the end of 2021. Serious delinquency occurs when a homeowner owes three months or more in mortgage payments.
At its peak, which is forecast to occur in the second half of 2021 with an unemployment rate of 7%, the forbearance-delinquency rate is projected to reach 4.6% in 2021’s real estate market Coronavirus landscape.
The most important factor affecting the residential real estate market post-Covid19 is expected to be price. Buyers and renters shouldn’t expect prices to fall. In fact, in states where prices are already rising, we might continue to see marginal increases in real estate prices.
Mashvisor’s January 2021 state-level data shows, for example, that in the California real estate market, the median property price is $850,503, up by 0.8% from $843,751 in October. Also in the Florida real estate market, the median home value is $496,935, up by 2.03% from $487,033 in October.
These price increases sometimes extend to rental rates for traditional and short-term rentals. In California, for instance, the average traditional rental income was $2,844 in January 2021, not really an increase from its $2,842 value in October last year. But in the Florida real estate Covid-19 market, there has been a 16.2% increase in traditional rental income from $1,883 in October last year to $2,188 in January 2021.
Concisely, here are the major residential real estate market Covid-19 updates real estate investors, agents and brokers, and home buyers and sellers should pay attention to in the 2021 housing market:
- Rise in work from home means shorter commutes will become less important.
- The spread of the Covid-19 vaccine could bring back delisted homes.
- The digitization of real estate activities continues by leaps and bounds.
- Increases in home prices in some markets are expected to continue.
- The forbearance-serious delinquency rate is expected to rise.
- Mortgage rates remain low with potential for slight rises.
- Demand by first-time home buyers still outweighs the supply of real estate listings.
- Low vacancy rates for long- and short-term rentals are expected.
- Rental affordability becomes a pressing issue.
- Redress of exclusionary zoning policies will occur.
Residential Real Estate Market Covid-19 Updates
Listings & Supply
Rollout of Covid-19 vaccines could bring back delisted homes
From early March to early April 2020, the number of delisted homes increased by over 25% compared to 2019. New listings were also down by over 40% due to the Covid-19 pandemic. Currently, both Pfizer and Moderna report that their vaccines show approximately 95% effectiveness in preventing mild and severe Covid-19 symptoms. While the advent of a Covid-19 vaccine doesn’t necessarily mean its plain sailing from here onwards, it will help restore seller confidence, and we might see more homes on the market in 2021.
“Some people will feel comfortable listing their home during the first half of 2021,” says Ali Wolf, chief economist for Zonda, in a Realtor.com article. “Others will want to wait until the Covid-19 vaccines are widely distributed. This suggests more inventory will be for sale in late 2021 and into the spring selling season in 2022.”
Digitization of real estate activities continue by leaps and bounds
A widely notable trend in 2020 was that some conventional procedures in real estate saw digital disruption. Some of these trends were growing at a slower pace pre-Covid19. Remote working tools and virtual showing and presentation tools saw increased adoption among realtors and landlords. From the use of drones and virtual reality (VR) tools to smart contracts, the way we do real estate is changing. In 2021, it’s not bogus to say we should expect more development in proptech.
Price & Demand
Increase in home prices in some markets is expected to continue
As illustrated before, price increases in some major real estate markets in 2020 aren’t expected to come to a halt in 2021. In a survey of more than 20 top US economic and housing experts on the real estate market Covid-19 bounce back, Realtor.com predicts that annual median home prices should increase by 8.0% in 2021 and by 5.5% in 2022.
Demand by first time home buyers still outweighs supply
Home selling sentiment still remains lower than pre-pandemic levels. Pre-pandemic inventory was not spectacular either, but Covid-19 forced many sellers to take their homes off the market. Darren Robertson, Realtor at Northern Virginia Home Pro, says, “Many sellers are waiting for things to normalize before listing their homes for sale. On the other hand, buying activity has not changed much. In fact, more first time buyers are entering the market.”
Realtor.com stats show that the share of first time buyers rose to 36%, up from 32% in 2019. It stands to reason that when demand outstrips supply, bidding wars arise, and we might deal with more of these in 2021.
Rise in work from home means shorter commutes are less important
The shelter in place policies of 2020 created an opportunity for work from home to thrive. This doesn’t mean the “future of work” is here, it just means that buyers are likely going to prioritize affordability over shorter commutes.
Forbearance-serious delinquency rate is expected to rise
Brian Robbins of HouseCashin points out regarding the predicted housing market Coronavirus foreclosures: “Due to the extended moratoriums, lenders haven’t begun processing defaults. But when they do, there could be a lot of foreclosures”. This might affect real estate markets negatively as supply in the form of foreclosed homes may overwhelm demand in 2021’s Covid-19 housing market. The result would be that prices plummet again. Some real estate Covid-19 predictions point to markets cooling off in the third quarter of 2021.
Mortgage rates remain low with a potential for slight increases
First time buyers looking to pounce on low mortgage rates drove last year’s real estate Covid-19 buying activity. We might see this trend cool down a bit as mortgages will see slight rises in 2021. The Mortgage Bankers Association says rates will average 3.3% in 2021.
Low vacancy rates for long- and short-term rentals
In 2020, due to stay at home orders coupled with moratoriums, many renters had no reason to move. Would-be renters had to compete for limited available listings in affordable markets, leading to growth in rent prices.
On the other hand, the high-end rental market saw an increase in vacancies as some millennials moved back home, and others sought out more affordable dwellings.
The Airbnb occupancy rate is also expected to make a recovery in the third half of 2021 due to the presence of Covid-19 vaccines. 2021’s Airbnb occupancy rates will match those of 2020, at a forecasted rate of 61.1%.
Affordability can be expected to be the primary factor driving rental demand and Airbnb occupancy rate recovery in 2021.
In general, Covid-19 housing market updates and forecasts point out that 2021 will be a good year to invest in both traditional and Airbnb rental properties.
You can use Mashvisor’s real estate investment software to find the best neighborhoods as well as the best income properies for investing in 2021, based on reliable data and analytics.