Orange County Housing Report: Looking back on 2020, looking forward to 2021

The following article includes views from Reports on Housing by Steven Thomas, economics expert and experienced real estate executive, and is not a reflection of the opinions, views, or predictions of Nuvision and its representatives. 

As we ring in the new year, prospective buyers and sellers looking to take the next step will naturally wonder what January holds for the housing market. Understanding where the market is headed for the new year requires both knowledge of key trends during 2020 and some foresight on possible economic developments in other sectors as we head into 2021.

To see where we’ll be in 2021, it’s necessary to look back at this year.

The pandemic was responsible for suppressing inventory during 2020, leaving 8% fewer homes on the market than the five-year average. Yet the supply problem was largely fueled not by fewer homes, but by increased demand due to historically low mortgage rates.

Demand lost all momentum in March when stay-at-home orders limited open houses, but it picked up again when mortgage rates began to drop in May. Pending sales quickly rose 74% during the month, climbing from 1,172 to 2,035 over four weeks. This upward trend in demand continued and peaked in September, seeing the highest number of pending sales for that time of year since 2012 and an Expected Market Time as low as 38 days.

Fast forward to December and demand is still running strong, though it has reached its lowest reading for the year since May. This is not unusual for the Holiday Market. We are still at the highest level of demand for December since 2012. Expected Market Time is also at the lowest level it’s been since tracking began in 2004—meaning we are still in an exceptionally Hot Seller’s Market.

The housing market will remain hot through 2021.

The year should start with around 2,500 homes available, a record low for inventory since tracking began. This, combined with continued strong demand, means housing will open hot. Buyers will be willing to stretch on prices, so homeowners can expect appreciation of up to 8% for the year. Sellers who price their homes reasonably can expect multiple offers, particularly during the early months, though they should price more cautiously as the Autumn Market approaches.

We should see a typical housing market cycle this year: strongest demand and new inventory in the Spring Market, decreased demand and fewer homes in the Autumn Market, and lowest demand during the Holiday market.

Mortgage rates are expected to increase from today’s 2.66% to 3.5% by the end of 2021.

Today’s rates are lower than they have been in years. If you had taken out a $700,000 mortgage at the end of 2018 when mortgage rates were at 5%, your monthly payment would have been $3,758. With today’s rates at 2.66%, payments are only $2,824—a $934 per month savings.

But buyers should be aware that anticipated improvements in the US economy throughout the next year means mortgage rates will climb as well, though they will remain comparatively low at 3.5%.

While bad news drags rates down, good news pushes them up. With retail sales up, new homes available, consumers spending again, manufacturing rebooting, the coronavirus vaccine approved, and a congressional stimulus package on the horizon, the economy is looking up for 2021.