Understanding the 2021 Real Estate Market

As of the third quarter of 2021, the economy has fully recovered from a deep but brief contraction in first half of 2020, with the GDP (in 2012 dollars) at 3% above the pre-pandemic level.

Supported by the lowest mortgage rates in 50 years of below 3% for most of 2021, existing-home sales rose 11% year-over-year in the first 10 months.

Housing supply conditions were extremely tight in 2021, with the end-of-the-month inventory of homes for sale dipping to historic lows.

Builders continued to face the economic fallout of the pandemic, delays in sourcing materials and parts, rising cost of raw materials, and difficulty hiring construction workers.

With intense competition for limited supply and rising home prices, first-time buyers struggled to compete against cash and repeat buyers.

Amid tight supply conditions, home prices typically rose in nearly all metro areas. Among 183 metro markets tracked by NAR, the median existing-home sales price rose in 99% of the metro areas as of the third quarter, with 78% posting double-digit price gains. Apartment demand and rents soared, with the median asking rent in 390 markets measured by CoStar® rising 11% year-over-year as of October 2021.

Looking ahead to the 2022 Real Estate Market

In 2022, the 30-year fixed mortgage rate is expected to rise to an average of 3.5% from 3% in 2021. With this rise in rates, existing-home sales are likely to decrease slightly from 6.12 million in 2021 to 5.9 million in 2022.

Supply chain bottlenecks are expected to ease in 2022, barring a major resurgence of COVID, and unemployment will continue to fall. Under these conditions, total new single-family and multi-family housing units started are expected to increase modestly to 1.67 million. Housing starts will be at pace with household formation (1.75 million in 2020).

Home prices are expected to increase, although at a modest pace of below 5%.

What Are "Hidden Gem" Markets?

NAR considered a market undervalued if its median home price-to-median family income ratio is at the lower end of the distribution of 379 metro areas relative to the distribution of a combined set of seven indicators that drive demand and supply:

  • 3-year wage growth (BLS average weekly wage, 2018 Q2-2021 Q2)
  • 3-year job growth (BLS non-farm payroll employment, 2018 Q3- 2021 Q3)
  • Ratio of the 3-year change in population (2020 vs. 2017) to the sum of housing permits over a 3-year period (2018-2020)
  • 3-year population growth (US Census Bureau, 2017-2020)
  • Net domestic migration as a percent of population (US Census Bureau, 2020)
  • Percent of population 25 to 44 years old (US Census Bureau American Community Survey, 2019)
  • Percent of household with broadband service (US Census Bureau American Community Survey, 2019)

The National Association of REALTORS® identified top 10 markets that underperformed in 2021 relative to their underlying market fundamentals. These markets are expected to experience stronger price appreciation relative to other markets in 2022.

The Hidden Gems of the 2021 Housing Market

The following areas have been identified as the top 10 undervalued metro area housing markets of 2021:

  • Dallas-Fort Worth, Texas
  • Daphne-Fairhope-Foley, Alabama
  • Fayetteville-Springdale-Rogers, Arkansas-Missouri
  • Huntsville, Alabama
  • Knoxville, Tennessee
  • Palm Bay-Melbourne-Titusville, Florida
  • Pensacola-Ferry Pass-Brent, Florida
  • San Antonio-New Braunfels, Texas
  • Spartanburg, South Carolina
  • Tucson, Arizona
Table: Top 10 Undervalued Metro Area Housing Markets in 2021

Download the full report to dive into what each market has to offer.