By CHAD SINGER | Special to the Palisadian-Post
While 2020 will go down in history books as a year of uncertainty due to the coronavirus pandemic, mass layoffs and record-setting economic growth in the fourth quarter, 2021 is looking to be a far better year with more certainty and a return to normalcy.
While so many industries and businesses were negatively affected, the real estate market managed to not only hold on but excel in a climate where most industries were threatened.
As we approach 2021, below are three key factors that I believe will continue the California real estate market on a positive course.
1. A Foreclosure Crisis is Highly Unlikely
In early 2020, when COVID-19 took the world by storm, it brought with it an economic downturn that many worried would lead to another foreclosure crisis—similar to the one we experienced after the housing crash of 2007-08. However, that is not likely to happen, and it is due to two major differences.
The first major difference is a robust forbearance program, which allows homeowners to delay their monthly mortgage payments until economic conditions improve. When lockdown orders were put into place, there was an immediate understanding that homeowners were faced with a challenge not within their control. The government quickly and efficiently rolled out a mortgage forbearance program that relieved the financial burden placed on many households.
Secondly, unlike in 2007, today’s homeowners are sitting on a record amount of equity. Barring a significant collapse similar to the one in 2008, that equity will allow them to sell their homes and walk away with money in their pocket instead of going through a foreclosure.
2. Home Prices are Predicted to Rise
Home sales prices over these past few months have made it clear that prices are going to continue to rise, despite the impact of COVID-19. With record low mortgage interest rates bringing in droves of both new and experienced buyers to the market place and lower home inventory available, an imbalance of supply and demand has created a seller’s market.
As a result of low home inventory and a now greater demand from buyers, multiple offers and bidding wars on properties have become more common, which have driven up home prices even further.
If you look at Zillow’s California real estate market forecast for home price appreciation, it predicts that property values will go up by 5% from now through August 2021.
3. Mortgage Rates are Predicted to Remain Low
Although COVID-19 has negatively affected us in many ways, the one silver lining is that it has brought historically low mortgage rates. This was caused by federal officials who tried to offset the negative effects that the pandemic had brought on the national economy. Low mortgage rates are a large reason for the higher buyer demand and home sales in the second half of 2020.
Going into 2021, most experts agree that mortgage rates will remain low. Fannie Mae recently released its mortgage rate forecast for the upcoming year, and their experts predict that the annual average mortgage rate will reach 3.2% by the end of the year.
By 2021, Fannie Mae’s U.S. housing market forecast sees mortgage rates dropping to 2.9%. If this ends up being the case, the demand for homes will continue to increase and likely keep the seller’s market going strong through 2021.
It’s important to note, however, that this mortgage rate forecast does not take into consideration that a COVID-19 vaccine may be introduced in 2020. If a vaccine becomes available to the public, some experts speculate mortgage interest rates may actually rise.
However, the market is at an all-time high riding on the optimism of the vaccine. By the end of the second quarter and early third quarter of 2021, the CDC believes that enough people will have been vaccinated that the country will be able to largely reopen and allow businesses to grow, and the country to return to normalcy.
While nobody can predict what will happen in 2021, all of the factors that I have mentioned above demonstrate that 2021 looks to be a great year for real estate and a return to stability for our country.
Chad Singer is a sales partner with Amalfi Estates, which has sold $1.4 billion in properties and was selected by the WSJ as one of the top 60 agents in the country out of one million agents. If you are thinking of buying a home or selling your own, contact Chad Singer at 818-605-3704 or chad@amalfiestates.com.
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