I’m no weatherman and not well versed in real estate forecasting. I specialize in selling what is, not what might be. However, this week, I researched specific data points published by national experts to assist my buyers who are weighing the pros and cons of moving now versus later. Allow me to condense the highlights.
Major Takeaway? The first half of 2021 projects to mirror the last half of 2020 minus the COVID blindside.
Minor Nuances? There are five
But first the context.
Worldwide pandemics have a way of creating bloated hysteria and after-the-fact obvious opportunity. In March, buyers smirked. “You watch housing prices plummet; 2008 all over again.” By November, buyers scrambled. “Ivy, show me something on sale,” to which I replied, “I’m stressed finding anything for sale.”
What happened? Austin’s housing market caught fire. As I type, we are staring at less than one month’s inventory, a historic Austin record. Why?
Two trends: one uniquely local, the other due to COVID side-effects.
Austin’s Local Phenomena
- Apple’s second campus rising on 133 acres is advancing rapidly.
- Tesla’s 1.1B Gigafactory is setting construction records.
- Facebook and Google will soon occupy 2M square feet of leased office space.
- Oracle announced on December 11, it has relocated its corporate headquarters from California to Austin.
- Weekly, the Austin Business Journal reports fresh start ups and new relocations.
COVID Side Effects Affecting Real Estate
Quarantine, workforce migration from office to home, shuttered restaurants, bars, cineplexes and schools locked us inside. A night out became a night in. A weekend away turned into shelter in place. Homes morphed into offices, on-line learning stations, gyms, entertainment centers and drop off locations for Uber Eats and Amazon. As a result, money migrated from discretionary distractions to home improvement projects. And then? “This place is not working; we need to move.”
And now 2021. What hand full of nuances lurk on the real estate horizon?
Nuance 1: Price and Sales
According to Daniele Hale, Chief Economist for Realtor.com, Austin’s sales growth could grow by 8.4% while prices are projected to increase by 4.6%.
What could alter these numbers? Austin developers are dragging their feet. By waiting six months, they will substantially increase their lot premiums to desperate builders. Combine this local factor with the overarching inflation of lumber prices, appliance scarcity, insufficient materials, labor shortages, rising regulatory fees, and delays and it all adds up to higher home prices that could exceed Hale’s 4.6% projection.
Nuance 2: Inventory
Home scarcity will remain intact for the first two quarters of 2020. If builders can obtain lots, single-family housing starts are expected to expand by 9% in 2021. Currently, there are few signs of distressed sellers impacted by the elimination of small businesses and high unemployment numbers.
Nuance 3: Interest Rates and Economic Recovery
Mortgage rates are at 50-year lows and should only gradually tick up as the year unfolds. Lower rates salve the sting of rising home prices.
Pre-pandemic economic levels may be reached by late 2021 or early 2022. As companies announce plans to allow employees to permanently work remotely, high-tax cities will continue to witness a talent drain as employees relocate in search of cities and suburbs with a lower cost of living.
Nuance 4: Millennials and Student Loans
The most debt-ridden generation in U.S. history is primed for home ownership but cannot make a move. Will the Federal Government address this issue and if so, what might it look like? And how quickly will 30 somethings vacate apartments for their first home purchase?
Nuance 5: Not Knowing the Unknown
Who predicted a pandemic for 2020? Likewise, will all the after-effects be predictable and positive? What if anxiety riddled workers opt for continued shelter in place instead of risking public exposure? What if surviving small businesses do not bounce back? We are observing unemployment moving up the income scale as inexpensive Artificial Intelligence replaces human brain power. Will this abate or accelerate? Will lending standards tighten as forbearance and foreclosure moratoriums draw to a close? Will individual investors exit the rental market as the rent crisis eases thus increasing much needed inventory?
Summary
The first half of 2021 should remain seller-friendly. If new home construction picks up and interest rates remain low, the second half of 2021 could improve a buyer’s bargaining position. By the end of the year, if everything forecast by national experts pans out, many predict homeownership rate will rise above 69% for the first time since 2005.
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