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Five Things to Know About the Housing Market for 2021

February 26, 2021

The year 2020 saw a massive downturn in the economy brought on by the COVID-19 pandemic. Despite this, it was a remarkably strong year for the housing market and demand is expected to reach greater heights in 2021. Zillow forecasts 21.9% annual growth this year for a total of almost 6.9 million homes sold.

In fact, some experts say the US is in the midst of a housing boom it hasn’t seen for about 15 years. Single-family home prices are up nearly everywhere, driven by low interest rates and strong demand. There has also been somewhat of an exodus from densely populated urban areas fueled by fears of the pandemic and a high reliance on the decimated service economy. This has only accelerated demand for housing. As pandemic restrictions fade, the economy will expand. Compounded by millennials and Gen Zs who have put off home purchases due to economic uncertainty, demand will likely continue to grow. Technology has given buyers the option to tour homes and close on purchases virtually, making home buying even easier. Of course, a superheated housing market brings its own set of complications and caveats.

Keith Lieberman, Senior Vice President & Site Development Practice Leader for T&M Associates, gives us his five takeaways from the trends he sees in the 2021 housing market.

1. Younger Americans will continue to wait before buying houses or committing to forming a traditional household.

Data shows that despite ten years of continual economic growth after the 2009 recession and record low unemployment in 2019, the 20-40 year-old age group still accounts for 3.4 million missing household formations. It is partly an affordability issue as housing prices have outpaced wages, but it’s more nuanced than that. Millennials & Gen Zs are drawn to a more urban environment and have less interest in a commitment to homeownership. So the missing household formations phenomenon is real and I expect it to continue for the foreseeable future.

2. Most experts predict that increasingly robust housing demand will continue. They’re probably right.

Despite affordability barriers, there are two main factors at work. The first involves the post-pandemic world and how remote work and increased flexibility will factor into overcoming the affordability issue. The other is that many Millennials are reaching an age where they will begin marrying and/or forming households, paying off college debt, and purchasing homes. In 2019, Millennials overtook Boomers as the largest generation group, at 72 million. By sheer numbers and after years of delayed household formations, Millennials will create momentum for more demand.

3. A high demand housing market brings its own set of challenges and opportunities.

We may in fact have a multi-year runway on housing demand due to a decade of pent-up demand from these delayed household formations.

Increased demand will further expose the affordability issue for both low and middle income earners. We need to manage that growth effectively, but make sure it is done properly. For example, many populous states have strict regulations related to approvals for development and construction. These regulations result in more costly construction and time delays for approvals. This cost is ultimately passed onto the consumer.

4. Some future scenarios might depress housing demand, but these are unlikely.

Overbuilding, high inflation, rising interest rates, or a faltering post-pandemic economy can quelch this demand. A flatter-than-expected post-pandemic economy is probably the biggest threat but there are no indicators of this on the horizon. The COVID-19 pandemic is only creating more bottle-necked demand for housing. Not only by the people who have been preparing for homeownership, but those impacted by the pandemic economy have been set back. Recently there has been housing market concerns, but I see this as a slight cooling off of a hot housing and home improvement economy. Long-term demand should persist.

5. Communities can take steps to deal with the problems associated with increased housing demand and maximize the opportunities that demand brings.

To address the issue of pent-up demand and affordability, communities must identify ways to become part of the solution. This includes removing roadblocks to new units and developments, investing in aging public infrastructure, and making zoning changes to make housing more viable. Through Smart Growth Plans and simplified regulations, states, counties and municipalities can play an important role in the solution. This will help drive economic growth through increased jobs and construction. It will also reduce barriers to homeownership and help families build asset-based wealth, which will benefit communities in the long run.

But many communities are not engaged in the solution. As housing demand increases, some communities become more restrictive and averse to new construction, rather than finding ways to streamline the process. The roadblocks they put in place only drive up costs to consumers and exacerbate the affordability issue. Demand is here to stay; local and regional governments have an opportunity to play a vital role in solving the housing formation paradox and help many families attain homeownership and build wealth.