Commercial real estate sales suffered heavily as a result of the COVID-19 pandemic. While the residential real estate market saw a strong dip last year, 2021 promises to be an about-face as home prices reach annual growth rates not seen since 1989.
According to data from the National Association of Realtors, 99% of metro areas tracked by the organization saw year-over-year price hikes in the first quarter of 2021. Most of the largest increases were in New York townships, but NAR leadership pointed out growing prices all across the country.
The biggest price increases happened in areas that don’t have particularly expensive houses, to begin with. For instance, Decatur, Illinois saw a 28% boost in prices while still being among the places where homes are cheapest.
The organization’s chief economist pointed to simple supply and demand as the cause for the increased prices. The demand for housing currently far outstrips supply and is likely to lead to a major rise in residential construction if it continues.
Buyer-friendly mortgage rates have also made buying more cost-effective than renting in many areas of the country. But mortgage rates are creeping up as well, growing to $1,067 on average compared to $995 in the same quarter last year. As millennials are entering peak home-buying age ranges, there’s every reason to expect demand will continue to push prices up through 2021.
Analysts from Freddie Mac suggested that home prices will grow 6.6% in the US on average in 2021 and another 4.4% in 2022. The only hope for prospective first-time homebuyers to see prices stabilize is an influx of housing inventory if more homeowners decide to sell their homes.