As 2020 limps to an end, we face so many unknowns. How bad will Covid-19 get before it’s brought under control? How bad will the wave of evictions be when the moratorium on them expires later this month? How many home owners will be forced into foreclosure? What relief will we get from our lame duck Congress? If Republicans retain control of the U.S. Senate, how much will Joe Biden be able to accomplish? For that matter, will there be a peaceful transfer of power?
Despite these unknowns, I’ll offer here some insights of my own but also share what I’m reading in trade publications and news services.
Realtor.com has released a “2021 housing forecast” that predicts home prices, which have spiked during the pandemic, will continue to rise through 2021, to the detriment of first-time home buyers. The historically low mortgage rates will also tick up in 2021, further reducing affordability. The report predicts a rate of 3.4% by year end — still quite low, but an increase over current rates well below 3%.
To quote realtor.com, “folks shouldn’t hold their breath for a bargain.”
The report predicts that the double-digit appreciation seen nationwide in 2020 will decline to a still high 5.7% in 2021.
That said, there remain “hordes of buyers” who can still buy homes and who are bidding up the prices of the homes that do come on the market.
As I’ve reported previously, the inventory of active listings is not low because sellers are reluctant to sell. Sellers know that now is the best time to sell. We are seeing record numbers of new listings, but they sell so quickly that the number of active listings remains low. And, of course, that dynamic is creating bidding wars which are driving up prices, beyond what comparable recent sales would justify.
That raises the question of how homes can appraise when they are bid up past their market value. The answer is two-fold. First of all, the winning bidders are often the ones who waive appraisal, and, secondly, an appraiser has to consider the existence of competing offers in determining market value. If a home sells for $30,000 over what it should appraise for based on recent sales of comparable properties, but the appraiser is told about losing bids that are as high or nearly as high, those other offers establish market value. Even if the appraisal then comes in below the contract price, the seller is typically able to stand firm, forcing the winning bidder to drop his appraisal objection or make room for buyer #2 to step in at the same price. This is bad news for buyers, but excellent news for sellers.
Getting back to the predictions for 2021, I believe that the Covid-19 effect I have described previously will continue well into 2021 and possibly beyond. That effect is a mass migration from crowded cities with high-rise condo and apartment buildings to single-family neighborhoods throughout Denver and the other metro counties.
That migration will continue to drive down prices in high-rise buildings while driving up prices in townhomes and detached single-family homes.
I should note, since I’m featuring a condo in Belmar Plaza this week, that the Covid-19 effect should not apply to that low-rise (5-story) building. A $690,000 condo there went under contract this week. On multiple visits to my own listing, I can’t recall sharing the elevator with another tenant more than once, and the stairs are an easy option since it’s only on the second floor.