Zillow Predicts Stronger Housing Market Across the Board in 2021

Rhea-AI Summary

Zillow forecasts a robust housing market in 2021, anticipating the highest annual home sales growth in nearly 40 years, with a projected increase of 21.9% leading to 6.9 million homes sold. This surge is fueled by economic recovery, demographic factors, and a growing demand for city living as local economies reopen. However, rising home prices and mortgage rates pose affordability challenges for buyers, especially first-time homebuyers. The expected digital-first trend in real estate transactions will facilitate quicker connections between buyers and sellers, streamlining the home shopping experience.

Positive

• Projected 21.9% growth in annual home sales, reaching 6.9 million homes, the highest since 1983.
• Increased demand for urban living as economies reopen is expected to drive sales.
• The digital-first approach in real estate enhances transaction efficiency and buyer-seller connections.

Negative

• Rising home prices and mortgage rates may create affordability issues for buyers.
• Expected significant rental price increases could financially strain renters.

SEATTLE, Dec. 21, 2020 /PRNewswire/ -- The for-sale housing market showed incredible strength in 2020, and Zillow® predicts 2021 will be even stronger. 

Demand continues to grow, and is expected to surge in the cities as economies reopen. Zillow forecasts annual home sales growth will be the highest in nearly 40 years as life and financial certainty brings more sellers into the market to meet the heavy demand and technology allows for faster connections with interested buyers. Home prices, mortgage rates and rents will rise, bringing affordability challenges that must be faced. 

Zillow predicts 2021 will be a year unlike any other as the housing market responds to the challenges and changing preferences that this year brought.

Zillow's housing predictions for 2021:

Demand for city living will surge in 2021, but don't call it a comeback
Demand for urban housing largely kept pace with the suburbs in 2020. But rent prices in urban areas softened compared to their suburban counterparts in the spring and summer as a shift in housing needs and the spike in service-sector unemployment left their mark. While it's not quite right to call it a comeback, Zillow expects demand for city living to surge in 2021. 

Some of the nearly 3 million adults who moved in with parents or grandparents in the spring have already started to move back out while taking advantage of an increase in rent concessions. With COVID-19 vaccine distribution underway, Zillow expects many of those who may have left cities temporarily during the pandemic are likely to return as local economies begin to open up, and a new class of young adults will be drawn to cities as they finish school and enter the job market. Urban rental demand is likely to be boosted by the relatively soft price growth this year, easing affordability challenges, at least temporarily. 

The next home shopping season will be the hottest in recent memory ... 
Zillow expects a perfect storm of market conditions to create the hottest spring shopping season in recent memory, with sales happening quickly and often above list price. It's likely COVID-19 vaccine distribution will be well underway in the U.S. by the spring, and local economies and schools should be in the process of opening back up. Many will also have more certainty about whether their jobs will be performed remotely in the long term, adding buyers to the market who had been waiting for that to be settled. Add in expectations for mortgage rates to rise later in the year, and we could see a buyer frenzy as they look to lock in rates as low as possible. 

… and it could be the last of its kind
Springtime has historically been the best time to list a home for sale, but homes have continued to sell quickly through the fall and into the winter this year in what could be the end of the typical seasonal trend. The increased adoption of real estate technology has given home buyers more tools to shop from the comfort of their home, which can be done just as easily during the warmer spring and summer months as it can in the dead of winter. That's likely to lessen the traditional seasonality of home shopping as it reduces the impact inclement weather can have on things like in-person showings and open houses.

Home sales growth will be biggest since the '80s
2020 has been a remarkably strong year for the housing market, with sales on pace to grow 6% from 2019 despite essentially pressing 'pause' for a few weeks in the heart of the spring shopping season. Zillow expects that mark will be shattered next year, forecasting 21.9% annual growth for a total of 6.9 million homes sold. That would be the biggest annual sales growth since 1983ⁱ. 

The optimistic outlook is due largely to the enduring strength of the market today, even through what is typically a slower season for home sales, and demographic factors that indicate demand will remain strong for years to come. Plus, about a third of homeowners considering selling in the next three years cited life and financial uncertainty as reasons they weren't selling this fall. The COVID-19 vaccine rollout and expected subsequent economic recovery should pull many off the sidelines, adding more inventory to meet the heavy demand for homes and thus creating more transactions. 

Moving will be a digital-first experience
Zillow predicts increased adoption of new and existing technologies during the pandemic will make a digital-first experience the new standard for real estate in 2021 and beyond, helping to increase the pace of transactions. These innovations can connect sellers with interested buyers more quickly, keeping inventory from stockpiling to the same degree it has in the past. 

Take the home shopping experience: Innovations like 3D Home tours paired with interactive floor plans and virtual tours are allowing shoppers to winnow down their options without leaving their couch -- requests for virtual tours tripled when stay-at-home orders began this spring. When it comes time to tour a home in person, self-tour technology allows shoppers to tour a vacant Zillow-owned home on their own schedule -- no more waiting for the weekend to visit open houses. And nearly two-thirds of Zillow Offers home purchases are closed digitally with a remote notary, one more convenience over the traditional home buying process. 

Renters are also expected to use pandemic-accelerated technology to search, find, apply for, and lease a home all digitally in a safer, easier, end-to-end online transaction. Nearly half (46%) of renters agree that they wish more listings offered virtual toursⁱⁱ -- since March, multifamily rental listings with a Zillow 3D Home tour have attracted 18% more visitors than those without on Zillowⁱⁱⁱ -- and 46% of renters surveyed would prefer to sign a lease onlineⁱⁱ. 

A Zillow survey^iv finds a vast majority of Zillow Premier Agents (72%) expect to continue using these virtual tools after the current coronavirus outbreak ends. And the pandemic prompted 43% of people in a Zillow survey^v to say they were more likely to sell a home entirely virtually, making it likely selling will increasingly move online with high-tech options like Zillow Offers.

Addressing housing vulnerability will be a top priority as rent prices rise
The expected surge in demand for rentals, which are more common near city centers, is expected to bring big price increases and fewer concessions from landlords. That will put many renters in a tenuous financial position after they were hit hard by pandemic-related income loss.

The rental market softened in 2020, with rents about flat nationally. In large metropolitan areas like New York, Boston and San Francisco, rents dropped for the first time in recent memory. Still, given the impact of shutdowns and layoffs on renter households,  government assistance proved vital in keeping many afloat financially. Moody's Analytics estimates nearly 12 million renters will owe an average of $5,850 in back rent by January 2021, shining a spotlight on the need for eviction protections or increased cash flow for renter households, whether in the form of employment income or federal stimulus payments to avoid a painful wave of evictions.  

Buyers will have a harder time affording homes, especially their first one
Mortgage payments have become more affordable for homeowners over the past two years thanks to ultra-low mortgage rates. Zillow expects rapid price growth and slightly higher mortgage rates to reverse that trend in 2021, so buyers contemplating a move may consider doing so sooner rather than later. 

Given the expected volume of sales, hopes for an economic recovery as the COVID-19 vaccine rolls out, and the expectations for demand to continue to outpace supply, Zillow forecasts annual home value growth to reach 10.3% in November 2021 -- the highest since 2006. Mortgage rates, which hit record lows in 2020, are expected to rise. Rates are likely to remain low by historical standards and not rise enough to meaningfully limit demand, but even a small increase would affect buyers' monthly payments. 

Combined, that will make homes harder to afford, especially for first-time buyers who don't have access to funds from the sale of their current home. 

About Zillow Group
Zillow Group, Inc. (NASDAQ: Z and ZG) is reimagining real estate to make it easier to unlock life's next chapter. 

As the most-visited real estate website in the U.S., Zillow® and its affiliates offer customers an on-demand experience for selling, buying, renting or financing with transparency and nearly seamless end-to-end service. Zillow Offers® buys and sells homes directly in dozens of markets across the country, allowing sellers control over their timeline. Zillow Home Loans™, our affiliate lender, provides our customers with an easy option to get pre-approved and secure financing for their next home purchase. Zillow recently launched Zillow Homes, Inc., a licensed brokerage entity, to streamline Zillow Offers transactions.  

Zillow Group's affiliates and subsidiaries include Zillow®, Zillow Offers®, Zillow Premier Agent®, Zillow Home Loans™, Zillow Closing Services™, Zillow Homes, Inc., Trulia®, Out East®, StreetEasy® and HotPads®. Zillow Home Loans, LLC is an Equal Housing Lender, NMLS #10287 (www.nmlsconsumeraccess.org).

i	United States Department of Housing and Urban Development, Office of Policy Development and Research; https://www.huduser.gov/portal/ushmc/hd_home_sales.html
ii	Zillow Consumer Housing Trends Report, 2020
iii	Zillow Internal Report, September 2020
iv	These results reflect the responses provided by a random sample drawn from Zillow Group's Premier Agent Research Panel.  While selection from the existing panel was random, membership in the panel is optional, and limited to current and former Zillow Agents.  These results may not accurately reflect the entire population of Zillow agents nor real estate professionals as a whole.
v	Data was collected by ZillowGroup Population Science from a survey of 2,600 U.S. adults recruited and interviewed between May 11th, 2020 and May 15th, 2020. Respondents were recruited from multiple general population internet respondent panels of U.S. adults from the contiguous United States. To promote the representativeness of the estimates, the sample data was weighted to align with key U.S. Census demographic benchmarks observed in the target population.

 

 

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SOURCE Zillow

FAQ

What does Zillow predict for the housing market in 2021?

Zillow predicts a 21.9% increase in home sales, reaching 6.9 million homes, driven by economic recovery and increased demand for urban living.

How will mortgage rates affect homebuyers in 2021?

Zillow expects mortgage rates to rise in 2021, potentially impacting affordability for buyers, especially first-time homebuyers.

What technological trends does Zillow foresee in real estate for 2021?

Zillow anticipates a digital-first experience in real estate, improving transaction efficiency and buyer-seller connections.

Why is urban living expected to surge in 2021 according to Zillow?

As local economies reopen and vaccine distribution progresses, demand for urban living is expected to rise, attracting many individuals back to cities.

What are the anticipated challenges for renters in 2021?

Renters may face increased rent prices and fewer concessions, putting financial pressure on those affected by pandemic-related income loss.