While COVID gets the blame for kicking this real estate market into gear, it’s our response that’s really behind the wheel for 2021
Those of you that have followed me for years know that I’ve blogged repeatedly about the driving forces behind this booming real estate market. With a new year, a new president, and a new vaccine, the question on all our minds is what’s going to happen in 2021?
Interest Rates – Will they keep going down?
Back in December, I wrote about how interest rates have been artificially kept low thanks to the Fed’s continued buying of Mortgage Backed Securities (MBS). At their latest meeting on January 27, they not only agreed to keep that in place, but to INCREASE it by an additional $40B per month!
We also probably won’t see the Fed raise the Fed Funds Rate (the rate that banks charge other banks to loan money) until at least 2023. While this metric is only loosely correlated to mortgage rates, it instead indicates a non-growing economy without inflation.
These two combined should help keep rates relatively low for most of 2021. I fully expect them to ease back up slightly as more and more good news about vaccines and stimulus hits, but not a full return to pre-COVID levels for a while.
Prices and Inventory
A client sent a funny GIF to me today that said “Shut up and take my money!”. For all of us sitting on the sideline waiting for inventory, this hits all too close to home. While intuitively you’d think that people would have run out of money by now, that hasn’t appeared to happen yet. As if to exacerbate the problem, there is talk about reviving the new-home tax credit, to the tune of $15k! While this won’t directly affect investors (only first-time homebuyers and owner-occupied), it does cause increase demand of the low-medium priced inventory that investors demand.
Summary
My wife constantly tells me I talk too much and should just spit it out. Well, here goes…
I see this market continuing to grow through at least the first half of 2021 and probably into 2022. I think rates will stop falling and may rise slightly, but won’t rebound anywhere near pre-COVID levels. Even with inflated home prices, it’s still a good time to buy, however I don’t encourage chasing. Rental rates are going up as well, so find a deal that hits its numbers (even if those numbers have to be an above-ask offer), and be content that you made a solid investment.
Source/Credit: Movement Mortgage | Forbes
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