December 9, 2020
Twenty-twenty has been a long string of disasters on almost every front except for one—real estate. Over the last few months, home sales across the United States saw prices hit decade-plus highs and inventory fall to record lows. It is estimated that over 22% of Americans moved during the pandemic, especially from densely populated urban areas to suburbs and rural towns. Salt Lake City, as a result, became one of the country’s Top 10 Most Favorable Areas to move to during the pandemic. While estimates suggest 2021 will not see the wildly unpredictable uptick in home sales and prices, it will continue rolling smoothly along a boom cycle curve. Below you’ll find our forecast and projections for Salt Lake in 2021 and why we expect the year ahead to continue to be bullish for real estate.
Home Prices in Salt Lake City Will Continue to Rise
It is natural for the momentum of home sales growth to slow after the last few month’s skyrocketing prices. Gen Z and Millennial buyers looking to enter the market will continue to drive starter-home sales upward. The luxury and second-home market will continue to thrive as we see the coronavirus’s financial impact mitigated among the wealthiest. Realtor.com projects that Salt Lake City homes will see a 7.5% sales growth increase and a 5.7% increase in price in 2021.
Inventory Will Remain Low, But Expect An Increase By Year End
According to Danielle Hale, chief economist at Realtor.com, “Inventory is the long haul symptom of 2020.” In the last month, Salt Lake City saw the largest annual drop in inventory in the nation at -48.9%: a symptom of our state’s growing population and inadequate new-build rates. Economists are projecting that supply chain and other market disruptions will begin to resolve in 2021, therefore picking up the pace of new construction. Also, sellers who put their plans on hold during the pandemic will confidently enter the market. Expect inventories to improve by mid-to-late 2021 and hopefully register an increase for the first time since 2019 by the end of the year.
New-Build Backlogs Point To A Strong Market Ahead
New homes sold over the last few months that have not yet began construction are another predictor of a strong real estate market ahead. According to Zillow, “an ongoing shortage of existing homes on the market has made newly constructed homes especially desirable. Slightly more than [2 million] new homes were sold [nationally] in [August-October] capping the strongest three-month stretch for new home sales since 2006…A sign of both continued homebuilding and market health to come.”
Seasonality Will Return
In 2020, home sales peaked in mid-October. Compare this with decades of mid-June summits, and you can see that this year was a definite outlier. Seasonality will return with strong spring and summer home-buying seasons and slowdowns in the fall and winter.
Financing Will Continue to Support Demand
As home prices soar across the nation, the Federal Housing Financing Agency announced this week that it’s raising Freddie Mac and Fannie Mae loan limits. This, along with the anticipation that jumbo loans will become more available in 2021, should increase buyers’ purchasing power. Rock-bottom rates may climb cautiously, but should still stay low enough in 2021 to enable buyers to upsize or purchase in a more desirable neighborhood. Expect mortgage insurance and other non-traditional loans to increase in 2021 as well. Approximately 75% of 1st-time buyers this past year were unable to make the typical 20% down payment amount, a trend that is not expected to go away.
Foreseeable 2021 Concerns
Of course, all things won’t be rosy in 2021. There is a high likelihood that our country will face a double-dip recession: a phenomenon not seen since 1980. Low-income housing will become more scarce. Our country could face a significant eviction crisis as more low-income wage workers face employment disruption. The impact of upward demand will cause previously affordable suburban markets to become out of reach for many buyers.
On Salt Lake City’s side is our economic exceptionalism. Our city and state continue to meet some of our nation’s strongest economic measures. Consider our low unemployment rate of 5% as of October 2020, and the fact that Salt Lake City has the highest social mobility rate (10.8%) in the nation. Local support of income equality, affordable housing and employment growth will continue to benefit all Utahns and minimize recessionary effects.
Low inventory rates and steadily rising home prices put Salt Lake City on track to have another strong year of real estate growth. New Gen Z, Millennial and out-of-state buyers will continue to be major drivers of price and sales growth. Demand will be highest for new builds, starter homes, luxury properties and mid-large sized homes with remote-working appeal.
As our country faces double recession, and dollar devaluation, real estate will continue to be a solid hard-asset investment. Low mortgage rates and higher loan limits will continue to stoke investment and drive sales growth in 2021.
Sellers can expect the market to stay in their court for the next year, but shouldn’t expect double-digit price gains. Low mortgage rates and a slow influx of new inventory will buoy buyer efforts. Home prices will stay up in 2021 while the rate of growth slows—a sustainable and welcome change of pace for everyone.