A 6.7% average rise in home prices indicates that 2020 was a good year for real estate in the U.S., despite the economic challenges. Some areas have even had double-digit increases, and home price growth is at its highest levels in six years. However, in a real estate market that is constantly changing, other properties have taken a bit of a knock. Investors need to be able to identify where opportunities present themselves.
Experts predict that 2021 is about to offer some interesting opportunities for real estate investing.
Buyer demand and a tight inventory
A shortage of available homes and buyer demand will continue well into 2021, according to the predictions of real estate experts. This is a market with low mortgage rates and at least 50% of millennials wanting to buy a home within the next year. It appears that the buying trend that was seen in 2020, when more than a million units were sold in August (the highest since 2006), is set to continue.
Unfortunately, homeowners were not too keen to place their homes on the market in 2020. This has led to a tight inventory, down by 38%. Expectations are that this is a situation likely to remain, at least for the beginning of 2021. But there are hopes that this will change by mid-year, allowing more buyers to find homes within their budget.
Affordability during a period of economic rebound
In 2020, fewer people could afford homes because of the record unemployment record rate and continuing stay-at-home orders. This led to a decline in affordable home sales, whereas luxury home sales rose slightly in 2020.
Unfortunately, many people find that even though mortgage rates are appealing, the increase in home prices is once again making homes less affordable. This gap between the wealthy and those looking for affordable homes is expected to continue to grow in 2021.
Industry experts all agree that prices will keep rising, but the appreciation is expected to be at 2% early in 2021. However, purchase loan applications dropped 5 % toward the end of 2020. If this trend continues in 2021, price increases are more likely to be around 0.2% later in the year.
Turning unwanted spaces into opportunities
Homes are in high demand, and this is the reason home prices continue to rise. Then again, commercial property has suffered under the impact of the pandemic on retail and other businesses in 2020.
Not all properties used as hotels, office buildings, retail outlets, and entertainment venues are likely to fully recover in 2021. Property owners and investors need to consider the adaptive reuse of this type of real estate and to turn it into much sought-after housing, and industrial properties. Currently, industrial property for use as distribution centers, cold storage, and warehousing is in high demand. These two types of property are expected to continue being in demand and will drive real estate opportunities in 2021.
A coming wave of foreclosures
The CARES Act of 2020 offered relief to millions of unemployed property owners. No one is sure if foreclosure moratoriums will be extended, and how the unemployment figures will pan out.
Most signs indicate the mortgage relief options and foreclosure moratoria are expected to end at some point next year. Each state is likely to have different timelines, and procedures can take anything from a few months to a few years. Investors will be presented with opportunities in 2021, but most experts feel these will only start coming on the market from late in the summer.
Experts warn that investors are not likely to see huge discounts because supply is low and demand is up. Both factors are driving values up.
This has been a tough time for landlords in some areas, whereas those in others have seen an increase in demand and rental rates. Unfortunately, eviction moratoriums have led to many landlords unable to evict nonpayers, but still responsible for paying their mortgages, insurance, and taxes. Investors with capital and patience may soon have the pick of some good offerings.
Profitability and renovated homes
Fix and flip homes saw lower profitability early in 2020 and a lack of interest from investors in the second quarter. However, buyer demands for newly renovated homes remain high, and investors will ensure this becomes a competitive market once more in 2021.
Real estate investment appears to be heading for a profitable 2021. In the words of Nagabhushanam “Bobby” Peddi, TRUiC CEO, “In a market where everyone needs a home, there are many real estate investment opportunities. Due diligence can give investors a huge advantage in returns when compared with other types of investments.”