Five Questions for Housing in 2021
Housing Flipped the Script on COVID in 2020. What Will Happen in 2021?
A special report from the Wells Fargo Economics Group answered the top questions for the housing market in 2021. Below are the highlights, the entire article can be found here. Special thanks to Mike Ahr, Private Mortgage Banker from Wells Fargo for providing the info.
1. What is the risk that the red-hot housing market will turn into a bubble?
Most of the housing bubble worries stem from the resurgence in home prices. The median price of an existing single-family home has surged 15.1% over the past year. The price spike, however, is the result of the sudden increased demand for housing rather than increased speculation. More apartment renters are looking to buy and more homeowners are looking to enhance their current homes or buy larger homes. This change in preferences results in an outward shift in housing demand that by itself drives home prices higher.
2. Another repeated concern is what happens when forbearance ends? Will there be a surge in foreclosures? And if so, how will that impact the broader housing market?
Foreclosures will increase once moratoriums end, but we doubt that we will see a surge in foreclosures once forbearance programs end. Forbearance has proven remarkably successful. The share of mortgages in forbearance, tracked by the Mortgage Bankers Association, surged in April and May but has been generally edging lower since June, with many of the borrowers exiting forbearance either making their mortgage payments or modifying their mortgages.
3. The pandemic also upended the resurgence in many urban areas and some of the larger and most dense areas have seen significant population outflows. The shift has raised questions on whether the urban renaissance is over and what that would mean for the apartment market?
We expect the move to lower-price markets to persist into the early years of the economic recovery. The majority of office work, however, will continue to be done in office buildings, particularly in creative industries where collaboration plays a critical role in driving innovation. San Francisco, Silicon Valley, Los Angeles, and Manhattan no longer have a lock on the creative industries long centered in their areas, however. Several metro areas, most notably Austin, Dallas, Denver, Atlanta, Nashville, Raleigh, Charlotte, and Miami, have developed substantial ecosystems and attained the critical mass of young talent needed to compete with these established globally-connected hubs for corporate headquarters, research facilities, movie, music, and digital entertainment studios and other facilities. Several of these markets have also developed sizable startup communities. These factors, along with the increased ability to work remotely, suggest the shift away from high-cost gateway cites appears set to persist through the early years of the coming decade.
4. Will the surge in delinquent rents weigh on the economic recovery?
Following the unprecedented spike in initial unemployment claims at the start of the pandemic, there was a great deal of speculation about how many people would have trouble making timely rent payments. Many state and local governments quickly enacted eviction moratoriums, which alleviated some immediate fears about public welfare but amplified fears about landlords’ capability to make their own financial commitments following a surge in missed rent payments. Forecasts of the potential shortfall in rent collections mounted much more quickly than actual data on rent collections. In short, a larger proportion of apartment renters have been able to make timely rental payments. This is not to say that there are no problems. A large percentage of renter households, particularly lower-income households, report that they are behind in their rent.
5. After ramping up over the summer, home sales lost a little momentum toward the end of 2020. Where do you see the housing market in 2021 and what are some possible wildcards?
- Home sales and new home construction should strengthen further in 2021
- Single-family construction should build on this past year’s strong momentum
- Affordability remains the biggest challenge for the housing market
- The pandemic and rollout of vaccines remain the biggest wild cards for the housing and overall economic outlook
