November 24, 2020
The prognosticators had promised Armageddon for the economy when the pandemic hit. Don’t get us wrong–it was plenty bad. But it was not as bad as many had predicted. The main reason for this resiliency? The real estate market. This is somewhat poetic justice because the Great Recession of 2008 was led by the real estate market. In 2008, real estate led us into a recession and in 2020, it has led us out of recession.
Thus, this question follows — “now that the economy is recovering and now that the election has come and gone — will real estate continue leading the way?” To answer this question, we must look at the reasons real estate was so strong this year. The biggest reason was record low rates. There is no doubt that if rates go up significantly, the real estate market will likely cool. Because we are a long way from completing our recovery, rates are likely to stay low in 2021. In other words, even if rates rise as the recovery progresses, homes will still be historically affordable.
The second reason driving real estate is demographics. In the decade following the 2008 recession, we did not build enough homes to accommodate our population growth. Millennials are maturing and Generation X’ers are reaching buying age. And now that more can work remotely, they are moving out of cities and spreading out. These demographics will not change in 2021. As a matter of fact, the forecasted increase in foreclosures after moratoriums end will help with inventory to meet demand. If the proposal for a first-time homebuyer tax credit is enacted into law, real estate could get even hotter in 2021. Of course, predictions are often changed when reality sets in.
Source: Origination Pro
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