The words we might use to describe 2020 — “tragic,” “turbulent,” “surreal,” “recessionary,” “isolating,” and, of course, “unprecedented” — wouldn’t seem to suggest a booming real estate market. And yet, aside from a brief pause in early spring, the housing market remained red-hot this year, one of just a few bright spots in an otherwise strained economy.
When the sawdust settles on the 2020 housing market, Lawrence Yun, chief economist for the National Association of Realtors, expects the United States will end the year with a 3 percent increase in home sales and a 6 percent uptick in prices over 2019. The median price of a Massachusetts single-family house has risen even faster — 11.3 percent, year to date through November, to $455,000, according to The Warren Group — though sales were up just 1.5 percent from last year.
Now with COVID-19 vaccines on the way, a path out of this painful pandemic feels tantalizingly close … yet still months away. What will that long slog toward something like normalcy mean for home buyers and sellers in 2021?
Housing economists are predicting another big year for real estate. “I think next year’s market will be quite strong — even stronger than this year’s,’’ said Daryl Fairweather, chief economist at Redfin. “As the economy recovers, as the vaccines get the virus under control, people will be back at work, and people who have delayed selling this year will be ready to sell,’’ Fairweather added. “Those are all positive signs for the housing market, and I think interest rates may tick up a bit but stay historically low, which makes a home more affordable.’’
Low mortgage rates are one of two reasons experts anticipate continued price growth in 2021; most economists expect rates on a 30-year fixed-rate mortgage to average just over 3 percent. The other reason is all too familiar to anyone who has shopped for a home recently: There just aren’t enough houses available for everybody who wants one.
“Homes are selling incredibly quickly — nearly two weeks faster than last year — because the market is so starved for inventory,’’ said Danielle Hale, Realtor.com chief economist. She expects the housing market to ride its current momentum through next year, with home prices climbing 5.7 percent in 2021, both nationally and in the Boston area. Hale forecasts sales volume to increase 7 percent overall and 5.4 percent in Boston. She also predicts a return to “seasonality,’’ with strong spring and summer buying seasons and a wind down in the fall and winter.
“We still continue to have a significant shortage of inventory here in the Commonwealth,’’ echoed Kurt Thompson, Massachusetts Association of Realtors president, and that will keep pressure on the local market.
The lack of new listings put a lid on home sales this year, Fairweather said, and pushed up prices. But as buyers and sellers start feeling more secure about their future — and thus more comfortable listing their home for sale or making a purchase — she predicts home sales in the United States will jump 10 percent in 2021 and price growth will slow somewhat, to a little less than 5 percent.
Yun also expects home price growth to moderate in 2021, rising 3 percent nationally, as more inventory hits the market in the second half of the year. It still won’t be enough to sate home buyer demand, however, with the largest generation in history in house-hunting mode.
Most millennials are now in their 30s — a big decade for weddings, baby showers, and housewarming parties. While the celebrations themselves may have been put on hold during the pandemic, housing experts say the desire to buy a first home — or to trade up into a bigger one, given that the oldest millennials will be turning 40 next year — hasn’t abated. That will all but ensure an unrelenting demand for available homes and another seller’s market next year.
“It’s not the news that buyers want to hear, but I think it’s going to get even more challenging, mainly because of the lack of inventory,’’ said Dana Bull, a realtor with Sagan Harborside Sotheby’s International Realty in Marblehead. “There’s just so much demand and just not enough houses to sell.’’
As it did this year, that buyer demand will likely continue to center on larger homes with offices and outdoor space. “People have to have a work-from-home strategy, even if it’s a quiet corner,’’ said Matt Dolan, also of Sagan Harborside. “They don’t necessarily need a full room, but they do need to have that ability.’’
The now-widespread corporate adoption of remote work is one of several trends the pandemic has accelerated, said Michelle Landers, executive director of Urban Land Institute Boston. While most companies had been slow to embrace telework fully, even as it grew more feasible over the past decade, “everyone had kind of no choice but to jump into that with both feet, and I think for the most part it was pretty successful,’’ Landers said.
Landers said people will crave the company of coworkers once it’s safe to return to the office, something she said bodes well for downtown districts. “There’s all kinds of pent-up demand for being around each other,’’ she said. However, Landers expects companies will continue offering much more flexibility going forward, with many workers commuting in just a few times a week.
“It’s not the news that buyers want to hear, but I think it’s going to get even more challenging, mainly because of the lack of inventory.’’ — Dana Bull, realtor
Between that potentially permanent work flexibility and the millions of millennials forming new families, the urban migration away from high-priced city centers and into lower-cost suburbs and ever farther out exurbs appears likely to continue in 2021. “For the longest time, people couldn’t compromise too much because they had to commute back into the office every day — they were kind of tethered to being within at least an hour of wherever their office was,’’ Fairweather said. “But that tether was broken by COVID. So I think people are going to move further out, and it’s going to be more affordable because they’ll have more housing options available to them.’’
But not everyone is untethered from their workplace and able to chase less expensive home prices. For all the hype about a hot market, another housing trend Landers sees accelerating in 2021 is growing inequality in what economists are calling a K-shaped recovery. “One of the risks that we see coming out of this is that one class has had an opportunity to be safe, to potentially even save money by not going out,’’ she said. “And another part of our society, who has really been keeping everything going throughout the pandemic, is at risk of falling even further behind.’’
Meanwhile, Bull said downtown Boston is now a very different market than outside the city — and one of the few places where inventory is higher than usual. She has clients looking in the Back Bay and South End, neighborhoods that until recently were well out of reach. “It’s an opportunity that I haven’t seen in years,’’ Bull said. “I’m not going to say it’s a deal, but even just being able to take a swing — that wasn’t the case two years ago.’’
“Once people feel confident that life will return to normal,’’ Fairweather said, she expects buyers to return to cities like Boston — if not for the jobs, then for the lifestyle. “Boston isn’t just about office buildings; it’s also a place where people go on vacation. It’s a college town. There’s a lot to offer besides office buildings, so if office workers don’t come back, I don’t think that’s the end of Boston,’’ she said. “Young professionals and college students are going to want to live in a place that has nightlife and bars and restaurants.’’
Landers also believes cities in general —and Boston in particular — will regain their appeal. “We’ll continue to be a center for ‘eds and meds,’ and that requires a lot of really hard-working, smart people, and they need someplace to live,’’ she said, noting that Boston ranked among the 10 hottest markets in Urban Land Institute’s 2021 Emerging Trends in Real Estate report. “The industry is pretty bullish about Boston as sort of staying a top-tier city.’’
With a competitive market expected in 2021, agents said it’s essential for buyers to prepare. That means researching home values, canvassing what’s available, connecting with a local agent, and getting preapproved by a lender so you can act quickly.
“The trick is, in a limited-inventory situation, you can’t necessarily just wait for the next one,’’ Dolan said. “The next one may take six months to come on, and it may have already increased another five or ten percent in price by then. So when you have something that works for you, you’ve got to be ready to go and place a strong offer.’’
Bull said she’s been increasingly worried in recent years that clients will experience buyer’s remorse, as they’ve stretched their financial limits to win bidding wars. She recommended that buyers use the winter months to do market research — and a bit of soul-searching as well — to educate themselves about what they want, what they don’t want, and where their limits lie.
“You’re going to feel, when you’re writing offers and submitting offers, that you’re going overboard,’’ she said. “So I think it’s really important that buyers are confident in their decisions.’’