Post-pandemic home values will grow at a cool 5% annual pace, but the condo and short-term rental market will heat up
SEATTLE, March 31, 2021 /PRNewswire/ — (NASDAQ: RDFN) —The post-pandemic housing market will offer some relief for homebuyers, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. The report was written by Redfin Chief Economist Daryl Fairweather.
1.) Home values will grow as the economy recovers, but at a slower pace as higher
mortgage rates temper demand
Double-digit home-value growth will end as the U.S. reaches herd immunity and the economy rebounds. That’s because mortgage rates will make buying a home more expensive, and Americans will have more options for how to spend their money. Instead of spending on homes, Americans will want to spend on activities like vacations, parties and dining. Some people will be eager to buy a home because they will feel more confident in their own economic prospects once the economy recovers. But some people will look at how expensive homes have become and hold off. As a result, home values will rise about 5% per year, which will be more in line with the growth of the overall economy.
As the economy recovers, mortgage rates will likely increase to pre-pandemic levels of around 3.5% for a 30-year fixed rate mortgage, making borrowing to buy a home more expensive than it is now. Since the economy is already doing better than many economists anticipated, there is a small risk that the trillion- dollar stimulus package could inject too much money into the economy and cause inflation and even higher mortgage rates of over 4%.
2.) More people will list their homes for sale
When the pandemic ends, the number of homes for sale should increase from record lows, but will likely remain below pre-pandemic levels. Five percent fewer homes were listed for sale in the past 12 months than in the year prior, and currently new listings are down 12% from last year. If most people are vaccinated by 2022, Redfin predicts that the coming year will bring a 10% increase in new listings.
More homeowners will decide to list in order to cash in on high home prices. And a small portion of those who were reluctant to sell during the pandemic because of fear of exposure to the coronavirus will be ready to list once vaccinated. Some homeowners who have been in forbearance will want to sell once forbearance ends to pay off their missed mortgage payments. But many new homeowners who locked in a mortgage rate below 3% during the pandemic won’t want to sell and give up their low monthly mortgage payments.
3.) The condo market will heat up
As the economy reopens and more people are back to work, more people will be looking to buy a reasonably priced home. And right now the most reasonably priced homes are the condos that buyers shunned during the pandemic. During the pandemic, condos sold at a 17.3% discount to single family homes, the largest discount since at least 2013, but post-pandemic condo prices will likely grow faster than single family home prices and the discount on condos will shrink.
“If you want to buy a condo, now is the time,” said Seattle Redfin agent Ben Stanfield. “I tell my buyers that if they’re open to looking at condos, we have the ability to negotiate on price and include favorable offer terms like an inspection contingency or a long escrow period. My personal opinion is that the condo market will start to see signs of life coming back in around October.”
Prices are already growing faster in urban areas, where condos are more common, than in suburban or rural areas. Soon homebuyers will see the value in the perks of owning a condo, like shared amenities such as pools and gyms.
4.) Suburbs will start to feel more like cities
When the pandemic ends, many people will continue working from home at least part-time, but they will begin taking their lunch and coffee breaks outside their home. This means the kinds of businesses that cater to workers will relocate to suburban areas where more of their customers will be during the day. For example, Starbucks is closing stores in urban areas while opening new stores in the suburbs, and small businesses in cities are recovering at a slower pace than small businesses in the suburbs. Over time, suburban communities will start to feel like more cities with more new restaurants, coffee shops, and happy hour spots opening.
Homes in the suburbs could become even more desirable, thanks to an increase in amenities. The value of a home is closely tied to what amenities are close by, and in the future, more suburbs could have it all—schools, parks, restaurants, coffee shops, and bars.
5.) Rents will rise quickly, especially for short-term rentals
Post pandemic, many people will decide to rent instead of buy a home simply because buying a home will be too expensive. Rents in expensive job centers like Manhattan and San Francisco will likely stay below pre-pandemic levels because remote workers will have more options for places to live away from their corporate headquarters. But in popular migration destinations like Austin and Atlanta, rents will increase more quickly because even more people will want to live in these less expensive cities when the economy is fully open and safe.
Short-term rentals will be especially popular. More remote workers will adopt a nomadic lifestyle, where they roam from city to city with no home base at all. A remote tech worker might spend part of the year working from a headquarters, part of the year working from a satellite office, and the rest of the year in a vacation destination. This will cause prices for short-term rentals to increase.
To view the full report, including charts and methodology, please visit: https://www.redfin.com/news/ways-housing-market-will-change-after-pandemic/
Redfin (www.redfin.com) is a technology-powered residential real estate company, redefining real estate in the consumer’s favor in a commission-driven industry. We do this by integrating every step of the home buying and selling process and pairing our own agents with our own technology, creating a service that is faster, better and costs less. We offer brokerage, iBuying, mortgage, and title services, and we also run the country’s #1 nationwide brokerage website, offering a host of online tools to consumers, including the Redfin Estimate. We represent people buying and selling homes in over 95 markets in the United States and Canada. Since our launch in 2006, we have saved our customers nearly $1 billion and we’ve helped them buy or sell more than 310,000 homes worth more than $152 billion.
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