How Much Will Home Prices Increase in 2021?

A new forecast published by Veros Real Estate Solutions is predicting home price appreciation will increase significantly over the next 12 months in the nation’s 100 most-populated markets.

The new forecast, which covers the fourth quarters from 2020 to 2021, is calling for an overall average increase of 5.9% by the fourth quarter of this year, which marks an additional increase of 0.9 percentage points compared to the 5% forecast issued in the third quarter of last year, and Veros noted this adjustment is due historically low interest rates and population migration trends.

Cities in Idaho, Washington, Arizona, Utah, and Colorado—five states that have benefitted from high volumes of inbound migration—comprise the entirety of the Top 10 metro areas in the Veros forecast, with Boise topping the chart with a predicted 14.1% home price appreciation by the fourth quarter.

In comparison, the list of the 10 least-performing markets is led by three cities in Texas—Midland, Odessa, and Laredo—with Veros noting that two of these markets were impacted by the problems facing the oil and gas industry, which came out of 2020 with a softer market demand and falling prices.

“Ultra-low interest rates and other government stimulus has allowed the housing market to boom, despite the coronavirus pandemic of 2020,” said Eric Fox, Veros’ VP of Statistical and Economic Modeling. “Home prices across the nation have returned to their pre-pandemic level and will move upward steadily in 2021 as job creation is restored and vaccinations take hold around the country.”

The Veros forecast is the latest data analysis predicting the continued home price appreciation that dominated 2020 will continue this year. Earlier this week, former Freddie Mac CEO Don Layton, a fellow at the Joint Center for Housing Studies, published a paper based on Federal Housing Finance Agency data showing home prices soared by 10.2% in the 12 months leading up to October 2020.

“This is a major event that should not be shrugged off or ignored,” Layton said. “While it could simply be a pandemic-period distortion that will disappear as COVID vaccines are broadly distributed, it could also reflect a new normal for the dynamics of housing and housing finance. “For this reason, anyone in housing should have a view on this issue, as house price appreciation is fundamental to the economics of how families develop wealth, how much risk there is in mortgage lending, what the right business strategy is for mortgage and home construction companies, and also for government policymaking.”