Updated: Jan 15
Buyers hoping to score a deal on a home in 2021—or even find something affordable without having to dip into savings or push their budgets past the “we-could-live-without-electricity” point—might need to check their ambitions. Both the experts and the numbers paint a picture of a seller’s market in 2021.
The good news is that new-home construction is expected to ramp up and more homeowners are likely to feel comfortable putting their houses on the market as people get vaccinated against the coronavirus. These two actions are necessary before the number of homes for sale is likely to increase, which could help temper price growth.
Forbes Advisor spoke with experts about whether housing will become more affordable this year and which areas of the country might experience a price correction.
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Home Price Growth Is Making it Harder for Entry-level Buyers
Even a global pandemic did nothing to slow down the rising cost of homes in 2020, which doesn’t bode well for prices as vaccines are rolled out to the public. Year-over-year home price appreciation shot up between May 2020 (6%) and November 2020 (10.3%), according to American Enterprise Institute (AEI) Housing Center data.
Homes in the medium- to high-price range, which the AEI Housing Center defines as costing no more than 125% of the conforming loan limit—$484,350 in 2020—saw the biggest leap in price appreciation, increasing from 6.6% year-over-year in May 2020 to 14.6% in November 2020.
In December 2020, the median listing prices for single-family homes shot up to $340,000, a 13.4% increase from the same time the previous year, according to Realtor.com.
All this to say that homes are quickly becoming less affordable for more buyers. Even record-low mortgage rates, which have dramatically reduced the cost of borrowing in recent months, and loan programs designed to help buyers on a budget—like FHA loans—are little help in today’s inventory-strained and competitive market.
“The supply shortage has led to home price increases that offset affordable housing programs,” says Sam Khater, Freddie Mac’s chief economist.
The National Association of Realtors’ Housing Affordability Index shows that housing affordability is declining—despite lower mortgage rates—because rising home prices have “more than offset the decline in rates,” Khater says.
On a national level, the number of homes for sale in December dropped 39.6% from the same time in 2019—about 449,000 fewer homes.
Areas Where Prices Might Drop—And Rise
Across the nation, home price appreciation grew in 2020, and the consensus is that we’ll see more growth this year—at least in much of the country.
The Northeast lead the pack with the highest year-over-year home price growth (5.5% from December 2019 to December 2020), according to the National Home Price Appreciation report from ClearCapital, a real estate valuation company. The West (3.3%), Midwest (3.2%) and South (2%) fell closely behind.
Some of the metro areas with the most eye-popping year-over-year price growth were Columbus, Rochester and Philadelphia.