Despite still being amid a global pandemic, real estate investing is booming. The single-family rental space is primed for continued growth in 2021. Record-low mortgage rates and lack of inventory continue to drive demand for housing. Couple that with the pandemic-related mass exodus from major cities to the suburbs, the industry is seeing spikes in housing prices across the country, making it unaffordable for many potential buyers. The single-family rental space is undoubtably having its moment, but that is just a portion of the big picture. How is the rest of the real estate investment industry fairing and what trends lay on the horizon?
Home prices skyrocketed in 2020 and it no doubt continued to be a sellers’ market. As we saw the year closeout, home prices ended 7.6% above where they were in 2019. (https://www.realtor.com/research/2021-national-housing-forecast/). However, the question that remains on everyone’s mind is, will the growth continue in 2021, and if so, for how long?
From all current indications, the answer is yes, strong growth is expected to continue for home prices in 2021. The median national home listing price grew by 15.4% over last year, to $346,000 in January 2021 (https://www.realtor.com/research/january-2021-data/). Pent-up demand for homes is not slowing down any time soon and there is still no easy answer for how to increase supply in the market. Even as the supply of new home listings has increased since the beginning of the pandemic, it has not been nearly enough to curb the sharp home price increases that we’ve seen throughout the country.
Many are banking on an increase in new construction starts, renewed interest in home flipping and an end to the government moratorium on single-family foreclosures to finally remedy the issue of inventory as we go into the Spring.
Current predictions are that 2021 will display a bit more normalcy than we saw in 2020 with the typical seasonal listing, buying, and selling patterns emerging and inventory increasing in the Spring as we have seen in previous years.From there, inventory levels are expected to continue to improve throughout the fall and into the end of the year as the vaccine becomes more wide-spread and people can get back to the way things once were.
Builder sentiment in the single-family space remains high in 2021 due to a growing desire to address the insatiable demand for homes with new construction. The National Association of Home Builders projects continued growth in the new construction space, with an estimated “6% increase in single-family housing in 2020, followed by a nearly 3% jump in 2021 and a 2% uptick in 2022”. However, even with this projected growth, the industry will still be below the production levels needed to keep up with the rising demand for housing. This is where new construction coupled with renewed opportunities in the fix and flip space will benefit the industry
For a combination of reasons, it is no surprise that home-flipping activity dropped over the past year. With limited buying opportunities in a highly competitive market, inexpensive homes were in short supply. However, investors that were able to find opportunities made hefty profits.
According to ATTOM Data Solutions, “the gross profit on the typical home flip nationwide (the difference between the median sales price and the median paid by investors) rose in the third quarter of 2020 to $73,766 – the highest amount since at least 2000” https://www.attomdata.com/news/market-trends/flipping/attom-data-solutions-q3-2020-u-s-home-flipping-report/
High returns on investment will continue to make the flipping space very attractive to savvy investors as long as they can keep finding properties.
Commercial real estate was probably the segment of the market that was hit the hardest by the pandemic, and at one point the industry was questioning if it would ever recover. However, it seems like recovery is commencing commercial real estate and there are positive indications that hard hit areas will be able to bounce back in 2021.
For example, with employment starting to rebound there is hope that the multifamily space will come out of the pandemic unscathed with an increased housing demand for returning workers. There is also optimism for the office sector as vaccine distribution has started and employees being able to return to work versus solely working remotely in the near future. While many companies have adapted to workers efficiently working remotely and offering more flexibility, there will still be a need for physical office spaces, which is good news for this area of the market.
As we continue to progress through 2021, it’s reassuring to see so many indications that the real estate market will continue a positive trend. While there are still areas of uncertainty that investors should be keeping an eye on, such as when government mandated foreclosure moratoriums and forbearance periods will finally be lifted and how that will affect the market, there is nothing looming on the horizon that indicates any sort of crash or major issues in 2021. It is incredibly impressive to have seen just how resilient the U.S. housing market is and continues to be even after how challenging 2020 was.
Erica LaCentra, Chief Marketing Officer, is responsible for planning, developing, and implementing RCN Capital’s marketing plan as well as overseeing the company’s marketing department. Joining RCN Capital in 2013, Erica led a strategic rebrand to position the company for nationwide expansion. Erica’s ongoing efforts have rapidly expanded RCN’s customer base and elevated the company to a national brand. Erica currently serves as a member of the American Association of Private Lenders’ (AAPL) Education Advisory Committee, the Marketing & Communications Chair for AREAA Boston, and a member of the REI INK Editorial Board. Erica holds a B.S. in Advertising with a minor is Fine Arts from Suffolk University in Boston, MA.
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