March 2021 Market Update
As we step into the new year, it's essential to reflect on the real estate market's performance in 2020 and prepare for what lies ahead in 2021. The housing market experienced significant shifts and challenges in the past year, with the COVID-19 pandemic impacting both demand and supply dynamics. In this market update, we will delve into the final 2020 appreciation numbers, inventory levels, and a home price forecast for the upcoming year.
- Appreciation Numbers - A Positive Outlook
The real estate market has been resilient despite the uncertainties caused by the pandemic. The final 2020 appreciation numbers indicate an approximate 10% appreciation in home values, contributing to a surge in housing wealth for homeowners. On average, homeowners have gained around $24,000 in housing wealth due to this appreciation (see Graphic 1 and Graphic 2).
- Inventory Levels - A Challenge for Buyers
Inventory levels have been a cause for concern, particularly for homebuyers. Graphic 3 depicts the inventory situation with the green line representing new listings and the orange/red line showing overall inventory. In February, inventory levels were down by a staggering 50% from the same period the previous year. This scarcity has led to increased competition among buyers, resulting in higher prices and quicker sales.
Currently, the Richmond Metro area is experiencing a severe shortage, with only a 0.6 Months Supply of Inventory available (see Graphic 4). This tight supply condition is likely to persist in the coming months, putting buyers under pressure to act swiftly when they find the right property.
- Home Price Forecast for 2021 - A Steady Rise
Despite the challenges posed by the pandemic, the real estate market has shown resilience and adaptability. According to forecasts (see Graphic 5), home prices are expected to continue their upward trajectory in 2021. On average, a 5.9% increase in home prices is anticipated. However, localized variations may lead to even higher appreciation rates in certain areas.
- The Economy and Interest Rates - Factors to Consider
As the economy improves and the vaccine continues to circulate, interest rates are expected to start rising (see Graphic 6). It is essential for both buyers and sellers to take note of this trend. For buyers, locking in a mortgage at the current lower rates could be advantageous, while sellers may want to capitalize on the current high demand and competitive market before rates impact buyer affordability.
Tips for Sellers:
Take Full Advantage Of The Market At Hand: Given the high demand and low inventory, sellers can benefit from pricing their properties competitively and being prepared to receive multiple offers.
Delay Your Review Of Offers: Allowing sufficient time for potential buyers to submit offers can lead to a more competitive bidding process, potentially driving up the final sale price.
Consider Negotiating a Cash Guarantee On Appraisals: In a market with rapidly rising prices, appraisals might not always match the agreed-upon sale price. Negotiating a cash guarantee can provide reassurance to buyers and facilitate smoother transactions.
Tips for Buyers:
This Is Not Your Grandma’s Real Estate Market: The current market is highly competitive, and buyers may face bidding wars. Being prepared, decisive, and working with an experienced real estate agent is crucial in navigating this challenging landscape.
It’s Only Going To Get More Expensive: With home prices expected to rise further in 2021, delaying a home purchase could result in a more expensive property down the road. Being proactive is key.
Set Your Sights Below The Top Of Your Range: In a competitive market, setting your budget slightly below your maximum can provide flexibility in bidding and negotiation.
The real estate market's performance in 2020 demonstrated remarkable resilience amidst the COVID-19 pandemic. The housing market witnessed a substantial increase in appreciation, leading to a surge in housing wealth for homeowners. However, low inventory levels have posed challenges for buyers, intensifying competition and driving prices higher.
As we look forward to 2021, the market is expected to continue its positive trend, with home prices forecasted to rise steadily. Buyers and sellers alike must be vigilant in understanding these dynamics and making well-informed decisions to seize opportunities in this dynamic real estate landscape. Whether you're buying or selling, it's essential to work with experienced professionals who can guide you through the complexities of the market and help you achieve your real estate goals.