You could be forgiven for believing that the coming year will be a disaster for real estate given the economic impacts of the coronavirus crisis. After all, previous economic meltdowns – like the Great Depression and the more recent Great Recession – were both very bad for the housing market. But conditions are remarkably different now. So much so that 2021 looks like it could be a particularly good year for real estate.
Despite coronavirus, housing prices steadily rose throughout 2020. In regions with strong economic development, like Salt Lake City for example, market growth far exceeded expectations. Local real estate brokerage CityHome Collective believes there is no reason to suspect 2021 will be any different.
Perhaps the only thing that could dampen the housing market in 2021 is an economic downturn initiated by higher taxes. Remember that 2020’s economic malaise was artificially induced by fear of coronavirus. Washington stepped up with the CARES act and other legislation to keep things going. That will not be the case if Congress and the new administration decide to roll back 2017 tax cuts.
Income Assistance and Forbearance
It is amazing to step back and look at what happened in 2020 from an economic standpoint. Millions of people were laid off in the early weeks of the coronavirus pandemic. Washington stepped up in a big way. First, they offered supplemental unemployment insurance that helped millions. Second, they offered business loans to companies willing to keep workers on the payroll.
Those two steps were critical to ensure workers still had money coming in. But then Washington went one step further by instituting dual policies for rent and mortgage forbearance. Renters in default were allowed to stay in their homes without fear of eviction. People unable to pay their mortgages could simply request to stop payments for up to 12 months.
While eviction moratoriums are set to expire, mortgage forbearance remains good for now. Any agreements banks entered with their customers in 2020 must be fully honored. The agreements have prevented the high foreclosure rates we witnessed back in 2008-2009.
Low Interest Rates Are Helping
Washington’s efforts to protect income and housing only tell half the story. The other half are interest rates that continue to stay on the low side. Unlike the double-digit rates of ’80s and ’90s, rates have remained below 5% for the better part of the last 12 years. And we all know what low interest rates do for housing.
There are no indications right now that the Fed is planning a significant rate increase in the coming quarters. Meanwhile, people are going back to work as the economy reopens. Even in the most hard-hit industries – like hospitality and tourism – things are looking up.
Demand Is High, Supply Is Low
The icing on the cake is the supply-demand ratio. According to numbers from December, we entered 2021 with the lowest recorded inventory of existing homes. There were only 700,000 of them, some 40% less then we started 2020 with. Yet demand has not waned.
So few homes definitely create a seller’s market. That means higher prices all across the board. It also spells good news for builders looking to supplement limited housing stock by putting up new houses as quickly as they can.
This year looks to be an exceptionally good year for real estate. A stronger-than-expected economy to start the year provides a good foundation. Low interest rates, a stable jobs outlook, and government action to protect personal income are building on that foundation to keep the real estate market humming right along.
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