The housing market should continue to be a busy place, according to First American. In fact, there are a few factors to keep the momentum of 2020 going well into the year.
For 2021 predictions to make the most amount of sense, it’s necessary to recap December 2020. The year ended with a 77.1 percent increase from the potential low point reached in February 1993. The overall market potential for existing-home sales actually increased 11.9 percent compared to the previous December, which is a gain of nearly 658,628 seasonally adjusted annualized rate (SAAR).
Even with such high numbers, the market failed to hit its potential by 1.2 percent or 73,142 (SAAR) sales.
“In the final month of 2020, the market potential for existing-home sales reached its highest point since 2007, rising to a 6.18 million seasonally adjusted annualized rate (SAAR) of sales,” said Mark Fleming, chief economist at First American. “While the winter months are traditionally real estate’s slow season, the housing market had one more surprise for us in 2020, as our measure of the market potential for existing-home sales showed the housing market again broke with traditional seasonal patterns during this unprecedented year.”
So, what’s going to drive the market in 2021? Mostly millennials driven by low mortgage rates. The older portion of this generation is on the hunt for upgraded homes, and since 90 percent of homes on the market are existing-home sales, their desire to move will add inventory.
Because of the pandemic, many potential sellers stayed put in 2020, actually increasing the average tenure length of owning a single home. A year ago, the average amount of time someone lived in a home was 10 years, and it has now increased to 10.5 years.
The lack of for-sale homes caused by the pandemic decreased inventory by 170,200 in December 2020.
“While the supply-demand imbalance will persist, existing homeowners who were hesitant to sell amidst the worst of the pandemic may be encouraged to bring their homes to market, relieving some of the supply shortage,” Fleming said. “Swelling demand and the potential for greater supply means housing market potential in 2021 is likely to remain strong and build off a historic 2020.”
Low mortgage rates will also entice first-time buyers to enter the market.