December 29, 2020 – Happy New Year! Economists around the world are predicting a vastly different year for 2021.

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Economic Commentary

Happy New Year! By the end of this week, 2020 will have ended. It is hopeful that we will never have to say goodbye to another year like 2020. Indeed, economists around the world are predicting a vastly different year for 2021. And while we may present some of these forecasts, we always caution that predicting the future is a very slippery slope. Certainly, 2020 has shown us how far-off predictions can be. How many predicted a world-wide pandemic which would cripple the economy for a portion of the year?

The recession hit hard in 2020, but the economy began to recover very quickly, especially in the real estate sector. The question is, how will the economy progress as we are vaccinating America and the world? Here is what some experts are saying —

  • Chief Economist Lawrence Yun of the National Association of Realtors® is predicting the economy will grow by 4.0% in 2021, after a drop of 5.0% in 2020. Both new and existing home sales should rise sharply, and interest rates will rise, yet they will stay near historic lows.
  • Fannie Mae’s economic forecast predicts the economy will grow by 3.3%, while the unemployment rate will average 5.9%, down from an average of 8.1% in 2020. Rates on home loans are expected to rise slightly, but stay below 3.0% on the average.
  • Goldman Sachs is a bit more optimistic, projecting an economic growth rate of just over 5.0% in 2021 and the unemployment rate falling to 5.3% by year’s end.

 While we can’t predict the future, we move into the new year with some significant optimism among experts regarding the direction of the economy in 2021. The momentum is expected to increase as the year moves forward.

Weekly Interest Rate Overview

The Markets. Rates eased slightly to hit another record low last week. For the week ending December 24, Freddie Mac announced that 30-year fixed rates fell one tick to 2.66% from 2.67% the week before. The average for 15-year loans also decreased to 2.19% and the average for five-year ARMs remained at 2.79%. A year ago, 30-year fixed rates averaged 3.74%, more than 1.00% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – “The housing market is poised to finish the year strong as low mortgage rates continue to fuel homebuyer demand and refinance activity. Moving into 2021, we expect rates to hold steady but the key driver in the near term will be the trajectory of the COVID-19 pandemic and the execution of the vaccine.” Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Real Estate News

Defying high unemployment and an economic recession, the housing market has surged during the COVID-19 pandemic. That isn’t likely to let up heading into the winter months, said Lawrence Yun, chief economist of the National Association of Realtors®. “2020 has been a year of surprises,” Yun said, singling out the robust housing market in the face of a global pandemic. “This winter may be one of the best winters for sales activity,” Yun said. “It won’t match summer or spring sales numbers, but on a winter-to-winter comparison, this could be one of the best breakout years just based on the fact that pending contracts are at such a higher level.” Applications for residential loans also are up 20% year over year, which reflect buyers in the pipeline that have been approved for home loans and are ready to buy. What’s next for 2021? A persistent housing shortage will likely keep home prices elevated, while new- and existing-home sales will continue to rise as record low interest rates and a work-from-home trend give housing markets a boost, Yun said. Yun believes the economy likely will continue a strong recovery — dependent on a successful vaccine. Source: The NAR

Economists at Realtor.com weighed in on how they think the housing market will shape in 2021 after the wild and crazy ride we’ve been on in 2020. On home sales economists predict activity to slow from those frenzied levels which represented underlying housing demand as well as make-up buying for a spring season many buyers missed out on plus a sense of urgency brought on by record-low interest rates. Still, they are predicting that home sales in 2021 will come in a whopping 7% above 2020 levels, following a more normal seasonal trend and building momentum through the spring and sustaining the pace in the second half of the year. “As make-up buying from the disruption of spring 2020 fades, home purchases will be propelled by underlying demand in 2021,” the economists wrote. “This demand will come from a healthy share of Millennial and Gen-Z first-time buyers as well as trade-up buyers from the Millennial and older generations.” And what about home prices? Realtor.com is predicting that home price gains will end 5.7% above 2020 levels, decelerating steadily through the spring and summer, and then gradually reaccelerating toward the end of the year. Here’s the pattern they predict: first a slowdown and the prices will settle into a sideways pattern and eventually begin to turn higher. The slowdown is thanks to more sellers expected to enter the market. The uptick is due to the expectation that those Gen-Zers looking to buy their first-home and Millennials who are both first-time and trade-up buyers will keep upward pressure on home prices. And expect improvements to inventory. “We expect inventories to improve and, by the end of 2021, we may see inventories finally register an increase for the first-time since 2019,” the economists wrote. “The housing market in 2021 will be much more hospitable for buyers as an increased number of existing sellers and ramp-up in new construction restore some bargaining power for buyers, especially in the second half of the year. Source: Rise and Shred

Home construction in less dense, lower cost areas continued to overperform in 2020’s third quarter, adding more evidence to the concept of the growing suburban shift. The National Association of Home Builders’ (NAHB) Home Building Geography Index (HBGI) revealed that, for the second straight quarter, data is showing that construction is following consumer preferences away from large urban areas and toward more affordable areas like suburbs and exurbs. Suburbs of medium-sized cities posted the largest single-family construction growth in the third quarter, up 15% year over year. On the other hand, the worst performing areas for single-family building were large metro urban cores, which were also up annually but with only a 5.7% increase. Since the first quarter, the market share for single-family construction in urban core areas dropped from 18.0% to 17.2%, while the single-family market share for small metro cores and suburbs grew from 37.7% to 38.2%. The same trends are bearing out in the multifamily sector, as well. Apartment construction in large metro cores and suburbs fell from 67.1% to 65.2% in the third quarter. Meanwhile, apartment construction in small metro core areas has grown in market share from 21% in the first quarter of 2020 to 22.4% in the third. “The HBGI clearly shows that the geographic changes noted in the second quarter data continued into the fall, providing a boost to building in more affordable markets,” said Robert Dietz, the NAHB’s chief economist. “The ability of individuals and families to live further from urban cores is empowering consumers to acquire housing with more space at a lower cost. NAHB Chairman Chuck Fowke said that buyers are increasingly on the lookout for more at-home accommodations since they’re spending more time under their own roofs. Source: Scotsman Guide

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