2021 Spring Housing Market: What to Expect

If you are looking to buy a home in 2021, you’re in for a wild ride. You are going to experience home hunting as no one has seen before. We have seen an increase in prices across the board in the recent past. Everything, from shares of GameStop, Bitcoin, and even the value of some game cards have quadrupled in price.

Thanks to the trillions of dollars of stimulus in the name of economic relief, and because people are now spending more of their time at home for activities that would traditionally require them to leave the house, more people than ever are buying houses. Demand has increased dramatically since 2020 and is expected to continue to grow for the foreseeable future.

However, with a boom in demand for homes to buy comes a boom in the prices those homes sell for. A combination of low supply, low-interest rates, and government assistance has all contributed to propelling real estate prices to historic highs. If you are currently looking to buy or sell this year, here is what you should expect when searching for housing in 2021.

Low Supply

The Chicagoland real estate market has seen constantly decreasing inventory levels since 2008. Despite this, 2020 has brought a dramatic drop in inventory. There is a high demand for housing, especially in entry-level housing. The low inventory is likely to continue and with low inventory, and as a result, prices are likely to accelerate higher throughout the year.

A decade of under-building has now caught up with supply, just as demand seems to be peaking.

According to the United Census Bureau, housing permits are up 22% from just one year ago. New housing will help relieve pressure on the higher value inventory. However, building materials have not escaped the increases in prices and they are now at an all-time high. The higher price for building materials affects entry-level housing the most. High building costs make entry-level housing almost impossible to build for a profit, which discourages building to sell.

Lumber and plywood in particular, for example, have seen a 28% increase in price from just one year ago. We have no evictions, no foreclosures, and no inventory. I don’t see where the supply will come from until something changes, meaning there will likely continue to be price increases..

Price increase

The price at which a home may sell for is generated from the simple economics of supply and demand. As supply dwindles and demand continues to grow dramatically, the price of real estate goes up as a result. Real estate prices in the Chicagoland market have increased by just under 10 percent year after year. I believe this is likely to accelerate upwards as we go into the spring market. We can expect to see as much as a 20% increase in home prices in some of the hotter, more volatile markets.

Millennials are being stretched thin as the housing market continues to accelerate faster than increases in wages can keep up with. If you are looking to buy this year, the sooner you can get under contract, the better. Beating the heat of the market in the mid-spring might save you at least a few thousand dollars.

Rates expected to stay low

The average rate on a 30-year fixed mortgage rose almost half a percent since the end of January. The extremely low-interest rates have helped real estate prices continue to swell by driving demand up. According to a bankrate.com article, 42% of mortgage experts expect the interest rate to continue to climb. Mortgage interest rates closely follow the 10-year treasury bond which has been climbing since August 2020.

The jump in mortgage interest rates will increase mortgage payments and lower home affordability. Higher interest rates will put downward pressure on home prices.

For example, the same $1,500 budget in January will allow a max home price of $367,400. That same budget in February will only allow a home price of $350,200. Interest rates are likely to affect real estate prices negatively, however, low inventory is likely to still be the largest factor in home pricing.

FED Chairman Jerome Powell has promised low-interest rates until 2023. Recently Jerome Powell has lost credibility with investors. Most believe the money printing from the economic relief packages for the COVID-19 pandemic is going to result in inflation, which will then increase the value of homes as a result.

A continued climb in the interest rate will complicate the recovery of the economy by driving what people can afford down because higher rates will continue to affect home affordability.

Multiple Offers

Every home that is priced right and shows well is flying off the market. Well over half of all buyers, 56%, are facing bidding wars, according to a Redfin survey. The reason many home buyers are still looking, is they continue to get outbid.

If you are out looking for homes it is extremely important for you and your Real estate agent to go over strategies to compete in this market. The very best qualified buyers with realistic expectations are having the best luck. Nice homes in great shape that are priced well are flying off the market, making speed more important this year than ever. Sellers have all the leverage, so it’s important to act accordingly.

If you are competing with other buyers, the best thing you can do is try to be the first one in the door and compromise. This environment is likely to continue through the 2021 home buying season.

Conclusion

In this blog, we have provided information on the Chicagoland real estate market in general. Remember, real estate markets are local and the market could vary in your specific area and price range, depending upon supply and demand and general cost of living. If you, or anyone you know, are interested and need assistance navigating this market, we would love to hear from you. We provide professional real estate services to make your dream home a reality.