Per Lawrence Yun, Chief Economist at the National Association of Realtors, “the housing market was a spectacular surprise in 2020 – and the positive trend will continue this year as home sales in 2021 are expected to rise by around 10%.
While mortgage rates are highly influential, they’re not the only factor affecting home sales. Given the substantial commitment and financial dollars at stake, consumer confidence and life-cycle events such as marriage, changes to family size, and retirement all play a role. During the pandemic, we learned that most people who work in offices could be just as productive at home, and this new reality “ has in 2020 and “will help fuel home sales in the post pandemic economy. Already big tech companies are allowing greater work-from-home flexibility.”
“The housing shortage is the result of a decade of underproduction of all housing types. That is why apartment vacancy rates have been rising only by decimal points during the recession. Renters who would like to transition into ownership are facing sticker shock at home prices. Even with record low mortgage rates, affordability is barely improving because costs are outpacing income. Help could be on the way as the Biden Administration has proposed a $15,000 first-time home buyer tax credit, which would be available at the closing table. In essence, it is down payment assistance. Some negotiation with Congress is needed to make it into a law, and surely there will be qualifying income limitations to ensure the benefit goes to those who need it most. This is certainly welcome news for renters. But it is insufficient. “
“The housing market is facing an acute inventory shortage. Adding more demand without addressing the supply will push up home prices at an even faster clip. That is why it is critical to turn raw land into developable lots so that homebuilders can increase production.” ( This is why it is critical for land restrictions be eased through legislation at the state level and development fees be eased at the local jurisdictions.) “But Biden’s proposal to remove the 1031 like kind exchanges from tax code could hinder land sales and pile more negative pressure onto commercial real estate. Without serious reconsideration of the value of this tax incentive, home prices could take off and essentially negate the benefit of a federally supported down payment assistance program.”
“The Biden administration is also likely to appoint Federal Reserve governors who will be more tolerant of higher inflation and under the Biden presidency, overall government spending is likely to rise.” Bottom line, “ only when the supply of new homes is growing does stimulating additional demand make sense.”
*January-February 2021 REALTOR magazine
