As I mentioned yesterday, my 2020 predictions for our local housing market were WAY off base. :-) I did not see such a strong market coming, and if I had known about COVID my predictions for 2020 would have been even more dire. But yet, despite COVID, 2020 was a robust year in our local housing market with 12% more sales and a 10% increase in the median sales price.
So - knowing that my 2020 predictions were quite wrong - will I still take the time to make some predictions for the 2021 market? Sure! Why not!? :-)
As shown above, I am anticipating a 3% increase in the number of homes selling in Harrisonburg and Rockingham County in 2021 as compared to 2020.
Here's why...
- LOW RATES -- Some portion of the surge in home sales in 2020 was undoubtedly a result of low mortgage interest rates. Most economists expect those low mortgage rates to persist through much or all of 2021, so we can likely expect buyers to still be anxious to find a home to lock in a low monthly housing cost.
- BACKLOG OF BUYERS -- For the past two years (at least) we have been in a low inventory environment in most price ranges. This means that there are far more buyers in the market to buy than there are sellers in the market to sell. As a result, there are likely plenty of folks who tried to buy in 2020 but were not able to secure a contract on a house because of competition from other buyers. Those would-be 2020 buyers are likely to still be itching to buy in 2021.
- SUPPLY CONSTRAINTS -- I'm predicting a 3% increase in home sales in 2021 (as compared to the 12% increase we saw in 2020) because I think that supply (the number of sellers who are willing to sell) will constrain the number of buyers who are able to buy. I'd love to imagine that we'll have a surge of new construction to help combat this housing shortage, but it's not yet clear whether we will see a meaningfully larger number of new homes in 2021 as compared to 2020.
- DISCLAIMERS -- Could we actually see another 12% increase in home sales? Yes, though I suspect that would necessitate quite a few new homes (and new communities) to provide enough supply for buyers to buy. Could we actually see a decline in home sales in 2021? Yes, though if we do I suspect it will be a result of a lack of sellers selling, not a lack of buyers wanting to buy.
So, given that I am anticipating an increase in home sales, albeit smaller than last year, what am I predicting on sales prices?
After as 7% increase in the median sales price in 2018 and a 5% increase in 2019, we saw a much higher, double digit, increase in 2020. The median sales price increased 10% from $233,000 up to $244,900. Again, I did not see this coming. I think this increase in the median sales price was largely the result of lots of buyers wanting to buy, low interest rates keeping mortgage payments affordable despite higher sales prices, and a limited inventory of homes for sale.
So, where are we headed in 2021?
I am predicting a 4% increase in the median sales price in 2021 in Harrisonburg and Rockingham County, which would get us up to $255,000.
Here's why...
- MARKET FUNDAMENTALS -- Assuming a similar number of sellers sell in 2021, and that we continue to have strong buyer demand, it follows logically that we would see another increase in the median sales price in this area in 2021.
- PRICING OUT BUYERS -- I'm predicting a 4% increase in median sales price in 2021 instead of another 10% increase because I don't think that multiple years of double digit increases in the median sales price is sustainable, especially if mortgage interest rates were to increase. At some point, buyers will start to be priced out of the market for the homes they wish to buy, meaning they just won't buy.
- LOW RATES -- Most economists believe mortgage interest rates will stay at or near where they are now for much of 2021. This will continue to keep plenty of buyers in the market to buy homes -- and will make them comfortable paying at or above what last year's buyers paid, since their monthly mortgage payment will be so low.
- DISCLAIMERS -- Could we see another 10% increase in the median sales price? Yes, we could. I don't think it is likely, but if inventory continues to stay super low, buyer demand super higher and interest rates super low, we couldn't be totally shocked to see a repeat of last year's 10% increase in the median sales price. Could we see prices decline? This is very hard to imagine. I think we would need to see a major shift upward in supply and downward in demand, or a major shift upward in mortgage interest rates. None of those are expected to happen in 2021.
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