According to new analysis from Zillow, demand for housing will continue to grow and is expected to surge in the cities as economies reopen, resulting in annual home sales growth that will be the highest in nearly 40 years as we turn into 2021.
Zillow predicts that next year will be unlike any other as the housing market responds to the challenges and changing preferences that 2020 brought.
Demand for urban housing largely kept pace with the suburbs in 2020, but rent prices in urban areas softened compared to their suburban counterparts in the spring and summer as a shift in housing needs and the spike in service-sector unemployment left their mark. While it’s not quite right to call it a comeback, Zillow expects demand for city living to surge in 2021.
Some of the nearly 3 million adults who moved in with parents or grandparents in the spring have already started to move back out while taking advantage of an increase in rent concessions. With COVID-19 vaccine distribution underway, Zillow expects many of those who may have left cities temporarily during the pandemic are likely to return as local economies begin to open up, and a new class of young adults will be drawn to cities as they finish school and enter the job market. Urban rental demand is likely to be boosted by the relatively soft price growth this year, easing affordability challenges, at least temporarily.
Zillow expects a perfect storm of market conditions to create the hottest spring shopping season in recent memory, with sales happening quickly and often above list price. It is likely COVID-19 vaccine distribution will be well under way in the U.S. by the spring, and local economies and schools should be in the process of opening back up. Many will also have more certainty about whether their jobs will be performed remotely in the long term, adding buyers to the market who had been waiting for that to be settled. Add in expectations for mortgage rates to rise later in the year, and there could be a buyer frenzy as they look to lock in rates as low as possible.
The company says 2020 has been a very strong year for the housing market, with sales on pace to grow 6% from 2019 despite essentially pressing “pause” for a few weeks in the heart of the spring shopping season. Zillow expects that mark will be shattered next year, forecasting 21.9% annual growth for a total of 6.9 million homes sold. That would be the biggest annual sales growth since 1983.
The optimistic outlook is due largely to the enduring strength of the market today, even through what is typically a slower season for home sales, and demographic factors that indicate demand will remain strong for years to come. Plus, about a third of homeowners considering selling in the next three years cited life and financial uncertainty as reasons they weren’t selling this fall. The COVID-19 vaccine rollout and expected subsequent economic recovery should pull many off the sidelines, adding more inventory to meet the heavy demand for homes and thus creating more transactions.
Zillow predicts increased adoption of new and existing technologies during the pandemic will make a digital-first experience the new standard for real estate in 2021 and beyond, helping to increase the pace of transactions. These innovations can connect sellers with interested buyers more quickly, keeping inventory from stockpiling to the same degree it has in the past.
Innovations like 3D home tours paired with interactive floor plans and virtual tours are allowing shoppers to winnow down their options without leaving their couch – requests for virtual tours tripled when stay-at-home orders began this spring. When it comes time to tour a home in person, self-tour technology allows shoppers to tour a vacant Zillow-owned home on their own schedule – no more waiting for the weekend to visit open houses. And nearly two-thirds of Zillow Offers home purchases are closed digitally with a remote notary, one more convenience over the traditional home buying process.
There are some challenges over the horizon, though. Mortgage payments have become more affordable for homeowners over the past two years thanks to ultra-low mortgage rates, but Zillow expects rapid price growth and slightly higher mortgage rates to reverse that trend in 2021, so buyers contemplating a move may consider doing so sooner rather than later.