Low mortgage rates have been the key reason for the housing market’s strong performance in the midst of the pandemic and high unemployment. Time and again, home sales have responded to rate changes. In 2018, the economy was roaring along with jobs, jobs, and jobs, but interest rates climbed as high as 4.9 percent and home sales went into reverse. The annualized sales pace fell from 5.5 million at the beginning of the year to 5 million by year’s end. Taking another illustration, home sales were at the 5.2 million pace in September 2001 but then rose to an annualized pace of 6 million by the end of 2002, even though the economy underwent a recession with job losses after the horror of 9/11. The faster pace of sales came because, over that period, mortgage rates fell from 7 percent to 6 percent.
Real Estate in 2021: Plenty of Reason for Optimism A tax credit proposal and new construction are keys to improving home affordability, while creative reuse is the buzzword for commercial. By Lawrence Yun The housing market was a spectacular surprise in 2020—and the positive trend will continue this year. Home sales in 2021 are expected to rise by around 10 percent. Home prices will also climb, but I expect more moderate increases than we’ve seen, a break for first-time buyers. Mortgage rates will continue to be favorable, staying at or near historic lows of 3 percent on average. The labor market will strengthen, especially as vaccines become widely available and life moves toward normal. Around 4 million net jobs could be added, a gradual rebound from the net loss of roughly 7 million during the pandemic year of 2020. The unemployment rate by the year’s end could be at 5.5 percent, a great improvement from 14.7 percent in April 2020 when the nation was under a strict lockdown, but still a few notches up from the generational low of 3.5 percent right before the pandemic.
20 | Salt Lake Realtor ® | January 2021
While mortgage rates are highly influential, they’re not the only factor affecting home sales. Given the substantial commitment and financial dollars at stake, consumer confidence and lifecycle events such as marriage, changes to family size, and retirement all play a role. During the pandemic, we learned that most people who work in offices could be just as productive at home, and this new reality will help fuel home sales in the post-pandemic economy. Already, big tech companies are allowing greater work-fromhome flexibility. Other organizations will no doubt follow in some hybrid fashion. Perhaps the work-from-home trend was inevitable as internet speed and software improved. The pandemic just accelerated the timeline in a flash. Owners who were content with their home before the pandemic are thinking about the benefits of another bedroom to use as a dedicated home office or are considering relocating to the countryside, knowing that commuting to downtown offices every day has become a thing of the past. Some consumers are turning to vacation properties as an appealing workfrom-home option. The evidence is in the data showing home sales in vacation destinations around Lake Tahoe, the Smoky Mountains, and the Atlantic Coast growing faster than in metropolitan markets. The encouraging news on the home front contrasts drastically with the specter of nearly empty office buildings. Those with leases are still mostly paying rent even though office spaces are not being used, and businesses with leases that are terminating are clearly reevaluating their space needs. In the second and third quarter of 2020, office usage dropped by a combined 74 million square feet. The situation will not improve until the middle of this year; even then, the normal relationship between office job creation and net new leasing will not align
