When 2021 is over, it will have seen the highest level of home sales in 15 years. So said National Association of REALTORS® Chief Economist Dr. Lawrence Yun, speaking at the Residential Economic Issues and Trends Forum Friday during the 2021 REALTORS® Conference & Expo.
Yun expects the year to end with a 15% national increase in median home prices. Next year will be robust as well, albeit flat, with prices up about 2.8% as rents continue to rise. Yun says builder activity is “bouncing back” and having its best year in more than a decade as well, though nowhere near where it was in 2005.
“The housing market has been the one bright spot during the pandemic for two major reasons,” Yun said. First, low interest rates, and second, COVID-19 itself.
Those who moved during the pandemic often did so to be closer to family and friends or to buy a larger home, according to NAR’s just-released 2021 Profile of Home Buyers and Sellers.
Yun predicted the pandemic would continue to affect office workers’ choices about where to live. “We’re only in the first innings in terms of residential choices,” he said. “People haven’t fully digested the changes from the hybrid, work-from-home model.”
The Outlook for Rates, Inventory
In the financing arena, Yun said his best estimate is that mortgage rates will reach 3.7% by this time next year, higher than what buyers are have experienced this year but still “manageable.” According to Freddie Mac, as of Nov. 10, the U.S. weekly average fixed-rate mortgage was 2.98% with 0.7 points.
With the rapid increase in home prices over the last several years, Yun noted that the price-to-income ratio is “alarming.” But he noted the conditions that caused prices to collapse in 2007 and 2008 don’t exist today. “We don’t have subprime lending or oversupply,” he said.
Two unfortunate factors will ensure inventory picks up by spring 2022, Yun said.
First, as mortgage forbearance winds down, “it’s inevitable that some people will be forced to sell their home,” he said. “Those homes won’t linger on the market, though, because we have plenty of people ready to buy.”
Second, COVID-19 has driven up the U.S. death rate. “Changes in family circumstances lead to the possibility of home sales,” he said.
Inflation? Good Reason to Buy Real Estate
Addressing the specter of rising inflation—a natural consequence of the government’s pandemic stimulus spending—Yun noted that many investors are looking at cryptocurrency today as a hedge against inflation. Yun was skeptical, suggesting to the audience that their clients might do better investing in real estate. He shared historical data to back his point. “Decade after decade, real estate has been a good hedge against inflation. In the 1970s, inflation was high at 7.1%,” he said, but home prices outpaced inflation, rising 9.9% on average. In the decades that followed, home prices were on par with, or handily outpaced, inflation.
Yun also said he expects to see supply-chain issues stabilize by the middle of next year, which should ease inflationary pressure.