What we got right, and not so right, on our 2021 predictions
Every year, we make predictions about what’s going to happen in the housing market. And 2021 was a particularly unpredictable year.
The continuing impact of the COVID-19 pandemic, low housing inventory and historically low mortgage rates were major themes. Take a look back with us as we review our predictions and see what we got right, what we got wrong, and what truly surprised us.
Prediction: Rates would steadily rise through the year
The story of the housing market over the last year has to start with the story of mortgage rates. Or, as we’ve been consistently calling them, “historically low mortgage rates.” In January of 2021, national average rates dipped to 2.65% before gradually heading up.
In our March article looking ahead to the spring season, we predicted that rates, which had risen to the 3% territory at the time, were likely to keep inching up. When we next predicted what was going to happen to rates in the summer, they were still around 3%, yet we still expected them to head up.
When the Delta variant arrived over the summer, the economy took a hit and rates dropped back down. Not quite to the lows of last January, but they stayed under 3% from July through the end of September.
Though rates have once again started heading up and have consistently stayed above 3% through the fall, looking back we just couldn’t predict the effect that the Delta variant would have on the economy and rates.
Prediction: Home prices will remain high
The low interest rates of 2020, along with everyone stuck in their homes and looking for a change, pushed home prices higher and higher. Add to that Millennials were starting to come into the market ready to buy. All of these factors pushed demand for homes through the roof. Not surprisingly, prices followed with record home price increases at the beginning of 2021.
In our spring preview, we predicted that home prices would remain high through the spring. In the summer, after we saw home prices continue their upward trend, not only did we think they’d stay high, but we predicted that they’d continue heading up. But as we looked towards the fall, we saw signs that the helium was running out of the balloon. We predicted that rising home values would slow down, partially due to rates going up.
Comparing prices from last year to this year shows that we were pretty spot on with these predictions. Home prices kept rising and rising, month after month. For September, the last month for which we have data, the median existing price for all homes was $352,800, up from $311,500 for September of 2020. This was the 115th straight month of year-over-year increases, showing a trend that had started well before the pandemic hit.
Prediction: There still won’t be enough houses for sale
There has been an inventory problem in the real estate market for years. Since the fallout of the Great Recession in 2008-’09, builders have been slow to invest in new construction, even though it would add much-needed supply to the market. And even as demand has gone up in the last year and a half, fueled by record low mortgage rates, building thousands of new homes is not just a switch that builders can turn on to satisfy demand.
Even though the lead times for new construction were always going to lag behind the soaring demand, new construction hit another snag this year—skyrocketing materials costs. You’ve probably had to deal with supply chain delays for some of your own household goods; imagine those issues but with big ticket items like thousands of feet of lumber.
In the beginning of the summer, we predicted that the COVID vaccine would help factories, plants and sawmills get back to full capacity, bringing costs down. Then in the fall we hoped that these factors would start to increase the supply of homes on the market and bring down home prices. But the total number of houses on the purchase market remained low this year, down 13% from August of 2020.
Considering how easy this prediction should have been, our optimism for the impact of new construction makes our prediction… not entirely spot on in this area. Our prediction was that low inventory would continue to affect the market but kept holding out hope that new construction would help ease the supply problem. It never did.
Prediction: Remote work will remain
Some people and employers have fully embraced working from home, while others are still waiting and expecting office life to return eventually. It’s hard to say if remote work is here to stay for good or not, but based on homebuying trends from 2021, a lot of folks are acting like it will be around for a while, at least.
In the spring, we said that “WFH isn’t going anywhere” and pointed out that more and more home listings are featuring the availability of home offices. At the beginning of summer, we started to report on the phenomenon of homebuyers buying homes without regard to their commute, because they no longer had make their way into a centralized office. This fueled a Great Reshuffling, as more and more people moved out of towns where they were employed. In fact, we also did a lot of original reporting on this topic, highlighting the rise of hipsturbias and zoom towns during the pandemic.
In the fall, even after some offices reopened and employees were heading back in person, we predicted that remote work would stay available for most in some form or another for the foreseeable future. This will continue to allow people to purchase homes without regard for proximity to their work, which has been a boon to small towns and big cities alike.
In a recent Gallup report, 91% of employees hope remote work is here to stay, either fully remote or hybrid. So, for 2021 we got this one right.
Prediction: The bubble isn’t a bubble
With housing prices soaring this year, many homebuyers, especially first-time homebuyers, were priced out of the market. To some, it felt like 2008 all over again, when home prices were consistently rising before the bubble popped. In April, Google reported that users searching for information about when the housing market was going to crash had spiked 2,450%.
In our summer preview article, we pointed out that the market conditions were very different now, though the symptoms of the underlying issues felt very similar. The 2008 bubble popped due to rampant speculation and lax lending practices that have since been shored up. The factors that drove the housing market in 2021 were more grounded in supply and demand issues.
As we wrote in that article: “There’s little risk of a bubble popping this summer as we’re not really in a bubble at all.” So far, that prediction has borne out, but we’re still paying attention to this, as there’s still concern amongst economists about how our economy recovers.
2021 was an unpredictable year. Looking back at our predictions, it’s increasingly clear that there are two things driving the housing market right now—COVID-19 and low housing inventory. As we saw with new construction, the housing inventory question may not go away quickly. And as we saw with the Delta variant, there could be surprises in store on the COVID-19 front as well as we try to get the pandemic under control. So, the one prediction we’ll make here is that 2022 will likely be just as unpredictable as 2021.
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