Despite the pandemic and a complete upheaval of our world, 2020 was a great year for real estate — values increased, interest rates dropped to historic lows, and real estate helped to float the sagging economy.
What can we expect from 2021? See our predictions below.
Super Low Inventory
As we were writing this in mid-December, there were only 3,864 single family homes on the market in Maricopa County, a county of 4.5 million residents. We have 50 percent fewer homes on the market than in 2020 and inventory continues to drop.
Consequently, the average sales price is up 17 percent over last year. Many people have refinanced and are staying in place and there are simply not enough new homes coming to market to absorb our increasing demand. Our housing inventory would have to more than quadruple to get us to a balanced market.
So, for 2021 expect to continue to see bidding wars, rising prices, and lotteries for new builds.
Prices Will Continue to Rise
Prices will continue their ascent simply due to lack of inventory. According to Realtor.com’s 2021 Housing Forecast, Valley home prices are expected to jump 7 percent or more next year.
Not only is there a large influx of buyers coming from other states, there are a lot of leftover buyers from this year who are still waiting in the wings to find the right home. Of course, this means it is a great time to sell, as long as you have a plan for where to move next!
Interest Rates and Affordability
While historically low interest rates have made homeownership a possibility for many more buyers, finding a home within budget will remain a struggle in 2021. Buyers will continue to have to be aggressive and have a strong strategy for success. Often this requires having extra cash on hand to bid over asking price.
If you have kids who are trying to purchase their first home, consider a gift to help them bridge the gap. Rental rates are rising just as fast as housing values (Phoenix had the highest rent increases in the country), and affordability issues will increasingly be barriers for renters and homebuyers alike.
We predict that interest rates will stay low for at least the first part of 2021, but may rise a bit by the end of the year. Waiting is not going to benefit potential buyers this year.
A Sociological Shift
Across the globe, housing has been bolstered by the changes in the way we work, go to school, play, and live. With an abundance of people working from home, many people have fled the cities for bigger footprints in less populated areas and even different states.
People are upsizing, seeking larger lots, looking for outdoor amenities, and extra rooms. In 2021 we anticipate that this trend will continue to fuel housing demand and result in a continued increased in spending on home improvement — P.S. The Tiny House movement is officially dead.
Is Real Estate Headed Toward A Crash?
NAR Chief Economist Dr. Lawrence Yun answers this question best:
“Such a frenzy of activity, reminiscent of 2006, raises questions about a bubble and the potential for a painful crash. The answer: THERE IS NO COMPARISON.”
“Back in 2006, dubious adjustable-rate mortgages taxed many buyers’ budgets. Some loans didn’t even require income documentation. Today, buyers are taking out 30-year fixed-rate mortgages. Fourteen years ago, there were 3.8 million homes listed for sale, and home builders were putting up about 2 million new units. Now, inventory is only about 1.5 million homes, and home builders are under-producing relative to historical averages.”
Strong Local Growth
We are lucky because the Phoenix Metro area is well positioned for sustained economic growth. Recently, the National Association of Realtors, along with 20 economists, forecasted the top markets for economic strength based on domestic migration, low unemployment, mobility, and other factors, and Phoenix came in at the top of the list.
Phoenix is the No. 1 market in the country for job growth and we are seeing significant industrial growth and manufacturing expansion in the region, which will help to insulate the Valley from national economic challenges.
With all that has happened in 2020, it is great to see so much positive news on the horizon. If you are thinking of buying, selling, relocating or remodeling, please give us a call for a complimentary consultation. We are here to help make the process as seamless as possible for you!
John and Natascha Karadsheh are co-owners of KOR Properties, a boutique real estate brokerage serving the Valley of the Sun, and the creators and founding sponsors of Mesa Food Truck Fridays.
John has been a Multi-Million Dollar producing agent for over 17 years and is an Accredited Buyers Representative (ABR) and Certified Residential Specialist (CRS), and is the Chairman on the Arizona Regional MLS Rules & Policies Committee.
Natascha is an Associate Broker of KOR Properties, a Multi-Million Dollar Producer, Past-Chair of the City of Mesa Economic Development Advisory Board and the founder of the Falcon Business Alliance.
You can reach John at (602) 615-0843 and Natascha at (602) 909-4995, or visit their website: KORProperties.com.