That sigh of relief you hear is the collective vocalization from all of those who are happy to put a tumultuous and tragic 2020 in the rearview mirror. While residential real estate professionals may have benefitted from working in an industry that was a rare economic bright spot, the overwhelming public consensus is that it’s time to bid a good riddance to the chaos of 2020. I think it’s safe to say we are all holding out hope for strong performance and a return to pre-COVID normalcy in 2021.
How realistic is that hope? What changes can we expect to see as 2021 unfolds, and what trends will prove to be durable throughout the coming year and into the future?
A reduction or a shift?
The headline for how residential real estate lending and homebuying may be different in 2021 is a shift in the type of mortgage products. According to the predictions of agencies and institutions like Fannie Mae and Freddie Mac, and the Mortgage Bankers Association of America (MBAA), we are likely to see some reduction in overall mortgage production on a year over year basis. It’s important to note that that reduction is likely to come primarily from the refinance segment of the market. While we may ultimately see refinances, there is a school of thought that new mortgages for purchasing properties could actually increase—especially in the early part of the year. An up-tick in purchase transactions could take place in part because of pent-up demand, as well as an imbalance between prospective buyers and the number of homes available for sale.
Sticky trends
Which of the 2020 trends and changes brought on or accelerated by the pandemic will prove to have staying power? Some changes in homebuying and home finance that were already evolving have clearly been accelerated—in some cases by several years. The fact that the pandemic has limited some people’s ability to visit properties and tour homes on anything other than a virtual basis has made it that much more accepted as a way to gather information and make purchases. While there will clearly be many who will maintain that there’s no replacement for driving a neighborhood and physically walking through a property, the change in both perception and practice are real and durable. The influx of technology that introduces a new level of virtualization and mobility in how homes are being listed, featured, shown and financed, is here to stay.
The burbs
One question more than a few folks have asked me is whether the “flight to the suburbs” we’ve seen in 2020 will continue, or will former urban residents return to downtowns. While the suburban siphon may slow somewhat, I’d expect that general trend to continue—or at least not reverse. The degree to which comfort with new tech, mobile and remote work models has facilitated a correspondingly new level of comfort with working remotely on the part of both employers and employees. Nothing like a pandemic to accelerate a shift in working from home! Those who had to spend more in order to be able to live in an urban setting have discovered firsthand that they like being able to work remotely and live less expensively. The dining and entertainment options in urban environments won’t be going away—and will remain an attractive draw—but it’s going to be difficult to put the remote-work genie back in the bottle.
Home improvement
With more disposable income on hand, and plenty of time to take a hard look at what homebuyers do and do not like about their homes, renovations have predictably spiked. People are understandably motivated to invest in improving the place where they spend so much of their time nowadays. That’s good news for companies like Lowes and Home Depot, who have had an extraordinarily good year from a bottom-line standpoint. It’s less clear that the lending community has yet seen a corresponding increase in renovation loans. I expect we will see more of those in 2021, however, as the home renovation trend continues, and lenders work to make up what is likely to be a reduction in refinance mortgages.
Market dynamics
Making specific predictions about individual markets is tricky. Market dynamics are so dependent on market-specific factors that it’s generally not easy to make broad generalizations. However, one trend that is noteworthy is a continuing residential shift from more Northern climates to Southern markets. In Florida alone, for example, nearly 1,000 new residents are arriving from other states every day. It’s possible that this is a demographic shift being driven by aging Baby Boomers. Going forward, it will be fascinating to monitor this trend and see if it has accelerated at all due to the pandemic.
The more things change
While it may have felt (for very good reasons) that 2020 was a time of constant change and adaptation to new circumstances, the good news is that, in 2021, some things will not change. From a lending point of view, the opportunity for the consumer to become approved for their financing before making an offer to purchase will continue to be important. In the strong seller’s market that’s projected for 2021, the strength of that pre-approval will likely become more important than ever. For members of the real estate community, it’s essential to ensure that the lender selected by the consumer has done their due diligence with regard to income, assets and credits before issuing their preapproval—and that it isn’t just a glorified pre-qualification. Realtors would be wise to make sure to take control of their transactions. That means playing an active role in advising clients in ways that facilitate the ultimate success of the offer they are making and the successful closing of the transaction. No matter what the calendar says, successful, mutually beneficial transactions are one thing that will never go out of style.
