In perhaps one of the greatest comeback stories ever told—if you’re in the house buying industry—real estate had a record year. While spring sales sunk very low due to shelter-in-place orders and cautious buyers and sellers, the fall more than made up for a slow year.
First American explains exactly what happened in their Potential Home Sales Model, and how 2020 has primed 2021 for an even better year for selling a home.
“The housing market continues to impress, even as it enters the colder months, which is traditionally real estate’s slow season. After falling to a near-decade low in May due to pandemic-driven pressures, existing-home sales hit a 14-year high in October,” said Mark Fleming, Chief Economist at First American.
Taking a look at November, potential existing-home sales increased to a seasonally adjusted annualized rate (SAAR) of 6.05 million, which is an increase of 3.0% month over month.
“In November, our measure of the market potential for existing-home sales increased 10%, compared with one year ago, to a 6.05 million seasonally adjusted annualized rate (SAAR) of sales,” Fleming said. “While the housing market rebound has been nothing short of incredible, the forces driving the rebound existed prior to the pandemic. Looking ahead, the good news for housing market potential is these fundamental forces are likely to remain constant throughout 2021.”
The market for existing home sales actually outperformed its potential by an estimated 84,262 (SAAR) sales, or 1.4%. And between October and November 2020, the market performance gap increased by an estimated 16,847 (SAAR) sales.
As for trends that will keep house buying strong, there are a few. Low 30-year, fixed mortgage rates around and even below 3% will continue enticing buyers to purchase.
“How much home one can afford to buy given their income and the prevailing mortgage rate is a primary driver of home-buying demand. Compared with one year ago, falling mortgage rates and rising incomes for those still employed resulted in nearly more 352,000 potential home sales,” Fleming said.
The bulk of millennials hitting their prime home-buying age will also continue to boost sales for the next few years.
“Household formation contributed to a gain of approximately 161,000 potential home sales in November relative to one year ago,” Fleming said.
Limited supply and rapid appreciation will also continue to drive sales. In fact, inventory currently sits at a historic low, and people are staying in their homes longer—an average of 10.5 years as of November.
“The increase in tenure length reduced the potential for existing-home sales by nearly 175,000 in November,” Fleming said.