2021 Real Estate Forecast: Year-End Analysis and Predictions
I don't know about you, but I am always shocked by the rapid acceleration of time during the holiday season. Here we are in December and the year is nearly over. It always seems that once Halloween hits, it is just a matter of minutes before you wake up on January 1 with a headache and some leftover confetti on your pillow. The only thing that will likely change this year is probably the lack of confetti since none of us will be attending any New Year's Eve bashes during our latest lockdown. So while we still have a cup of coffee in our hand and clear vision, let's talk about our year in Real Estate and what we think will happen in 2021.
The Market Snapshot: Where we Were versus Where we are Today
In prior posts, I stressed that the disruption caused by COVID-19 would only delay our market and not destroy it. That eternal optimism has come to fruition. At the end of November, we have made our way back to 2019 numbers in all categories but one; the Median Price is up in all our markets over last year.
Unit Volume and Dollar Volume of sales continues to improve across all of our markets
- Unit Volume is only down about 7% versus last year. We were down 31% year to date at the end of June. By the end of December, we should have caught up with or exceeded 2019 unit volume sold.
- Due to the increase in home appreciation and the steady improvement in sales in our entire market area, we are now UP 1% in Dollar Volume over 2019. You may remember that at the end of June, we were down 27%.
The Median Price is UP and Home Equity on the rise
- Our entire market is up 8% in Median Price over last year.
- That means the Median Priced household of around $920,000 has realized about $70,000 increased home equity.
Current Trends and Forecasting in 2021
The trends that developed and shaped our Real Estate Market in 2020 were deeply rooted in the consequences of the Pandemic and subsequent economic shutdown.
Urban Flight – Affordability and Pandemic Perception
- Affordability was fueling the move to the suburbs in the months leading up to the pandemic.
- The quest for a less congested environment depends on your personal perception:
- If you lived in San Francisco, our neighborhoods in the East Bay seemed like the suburbs.
- If you lived in Oakland or Berkeley, the bedroom communities to our east offered more space for your dollar.
- Investors and the Condominium Market:
- While prices have not fallen in the Condo market overall, the available inventory has been much higher than last year and prices have not appreciated anywhere near that of Single Family homes.
- Investors are waiting for prices to soften in order to purchase properties for investment income at more reasonable levels. They feel that when people return to urban centers, they will return as renters.
The Millennial Impact on Suburban Resurgence
- They were ahead of the curve even pre-Pandemic:
- Millennials were making the move to the suburbs due to the affordability of housing.
- The Pandemic has accelerated their move to the suburbs:
- Affordability is still a primary driver.
- However, the Millennial cohort is adopting pets in greater numbers long before family formation, which is the traditional time for pet adoption.
- Looking for outdoor space:
- Pet adoption is one reason for the demand in outdoor space.
- Hunkering down at home during our Shelter in Place orders has made outdoor space a priority since taking the kids to the park is no longer a viable option.
- The Work from Home shift:
- The effectiveness of remote working has taken us all by surprise.
- The requirement to be in the office every day has eliminated the need to consider commute time when purchasing a home.
- This is a trend that will undoubtedly continue as employers look at the high productivity of a remote workforce, and look to reduce their brick and mortar footprint, which will only reinforce this long term.
Expectations for 2021
Technology Acceleration
- Disruption forces all businesses to adapt to, and adopt change:
- The shift to technology will only accelerate in all areas of the Real Estate world.
- Lenders were swamped with Mortgage originations and Refinances (Nationwide, Mortgage Applications are up 27% YOY).
- Lenders are slowly adopting eClosings to eliminate the need for in-person signing of Loan Documents at the Title Company.
- With technology, Lenders will be able to scale up with less of a workforce.
- Real Estate Companies have increased their reliance on technology for online marketing and will continue into the future, even if Sunday Open Houses return towards the end of 2021 (Nationwide, Pending sales are up 20% YOY, and Buyer traffic online is up 32%).
The 3 Factors Driving the Market in 2021
- Soaring gains in Home Equity and the Stock Market
- FOMO – Fear of Missing out (While there may be some abatement of the very tight inventory due to Proposition 19, it may not be enough to bring us into a balanced market for Supply and Demand)
- The overall forecasts for the economy in 2021:
- GDP growth was -2.7% in 2020. We expect a 3.5% growth in 2021.
- Unemployment will decrease slightly from the nationwide average of 6.9% this year, to 6.2% next year.
- Mortgage rates are predicted to remain steady.
- The number of people working from home rose by 21% in 2020. Next year, we expect at least 18% of the workforce to continue working remotely into the foreseeable future.
Reflections and Holiday Wishes
Whenever I try to make predictions of the future, I always picture Johnny Carson hold a sealed envelope to his forehead, predicting the answer to the question contained therein. I wonder if the Great Carnack could have predicted 2020. I wonder what lasting impact this year will have on our society and personal lives. Will we ever be comfortable again in a crowded restaurant, bar or sports stadium? Will mask wearing be a permanent fixture for us during the cold and flu season every year? How much of our household budget will be a line item for Purell and disinfecting wipes?
Whatever the future may hold for us, I remain both grateful and optimistic. Grateful that our families, friends and co-workers remain safe and healthy. And optimistic that the simple joy of a firm handshake or hug from a friend outside our family bubble will again become the norm. With the Holidays having arrived, all of us at The GRUBB Company wish you the Happiest Holiday Season. Cheers to a New Year.
Until next month, stay safe and healthy.
