It’s been a wild year for real estate. It’s difficult to think all the way back to the beginning of 2020 as it feels like it has dragged on for an eternity and, at the same time like we’re still stuck in a March quarantine time-loop. Despite the fog of the year, plenty has happened in real estate. You could say that this year has been one of the most surprising and exciting in quite some time!
When you look at real estate market reporting throughout the year, you’ll find a mixture of cautious optimism, flabbergasted disbelief, and doomsaying.
For real estate investors, being able to evaluate the market as it is, as years go by, is a crucial tool in decision-making. While the past doesn’t always indicate the future, it does give us valuable insights.
In a strange year like this, those insights are even more valuable.
Where Were We This Time in 2019?
To put 2020 in context, we need to go back and see where we were at the end of 2019 and what experts expected to see in 2020. Here are the high points:
- Interest rates dropped below 4 percent despite predictions they would rise.
- Demand for housing was on the rise while supply remained short.
- A healthy job market, stock market, and economy dispelled fears of a recession.
Going into 2020, many experts predicted that the real estate market was long overdue for a crash. After all, we’ve enjoyed over a decade of fairly steady growth in the United States in a post-Great Recession economy. Of course, we know that despite an economic recession, the housing market of 2020 defied every expectation. So...what happened?
Major Factors in 2020 Real Estate Market
Interest Rates
Interest rates continued to play a significant role in the health of the real estate market — namely, in sustaining demand. According to Bankrate, the second half of 2020 saw rates continue in their streak of record lows, with the 3-month average for 30-year fixed rates barely cracking 3 percent.
Of course, these interest rates were a major incentive for homebuyers and investors to seize the opportunity to acquire new properties or move house. In many ways, the continuation of low interest rates throughout the year has been a major contributor to sustained real estate demand despite the year’s unexpected economic and social challenges.
Housing Demand & Consumer Priorities
Interest rates alone were not the only motivation we saw in homebuyers. The COVID-19 pandemic was something no one saw coming, and there was no telling how the market would react. March 2020 was the whirlwind month for the U.S. real estate market as cities began to enforce social distancing guidelines and stay-at-home orders.
The immediate reaction in real estate was a sudden retraction, particularly in large cities. We saw homes taken off the market and all but the most important sales stall. While less dense markets saw a lesser reaction, it still slowed the market and set a dismal stage for the rest of the year.
Thankfully, the market quickly bounced back from its grinding halt for two major reasons: the incentive of interest rates combined with shifting homeowner and rental resident priorities. We saw a surge of demand for single-family homes. This growing demand was largely influenced by the pandemic — highlighting a need for more space between neighbors, square footage, home office space, and outdoor areas. Not only that but the work-from-home trend, both temporary and permanent, incentivized some to move out of crowded, expensive markets in exchange for a more spread out suburban lifestyle.
With tight inventory still an issue, this naturally created a rise in housing prices — up to a median of $311,800 in September from $266,200 in January 2020. Even when the market stalled in March and April, home prices barely flinched.
This, of course, stands in contrast to predictions of a housing bubble and its bursting in 2020. While we have been in “expansion” mode for some years nationwide, few markets have tipped into a stage of “hyper-supply” that precedes a recession. Because supply is tight and demand has been unstoppable, it’s unlikely that we will see a state of hyper-supply or collapsing prices anytime soon. Of course, we also must take into account…
Economic Recession
The real estate market and the economy are intrinsically linked. Even though the real estate market has been operating seemingly independently from the unemployment and economic crises we’ve seen over 2020, we know that they are indeed correlated. While the CARES Act earlier in the year and its various extensions provided some relief for homeowners and rental residents, that support didn’t — or won’t — last.
Despite a high-performing real estate market this year, investors and buyers would do well to approach their financial decisions with the same diligence and intention as ever. If we see no further reprieve for Americans and the economy at-large, particularly as coronavirus cases increase and mass vaccinations seem to be months off, we’re likely to see a turn in the real estate market in due time.
Lending standards have been more strict to facilitate lower interest rates, but the possibility of future foreclosures and an increasing affordability crisis are very real. In due time, the economic recession will pull the real estate market back down to earth.
Real Estate Investment in 2021
For our part, REI Nation hasn’t slowed down. It’s been our commitment to detail and customer service that has, thus far, allowed us to mitigate major issues. We’ve seen the vast majority of our residents continue to rent and pay on time. Over this year, we’ve also had the privilege to expand into new markets — with more in our sights. San Antonio, Huntsville, and Birmingham, Alabama all joined our family of turnkey investment markets.
Don’t let market predictions deter you from making the most of your real estate investments. In every stage and season of the market, great investment opportunities are waiting. And with REI Nation, you don’t have to do it alone!
Instead, invest in our carefully selected, proven real estate markets alongside experienced property managers, renovators, and personal portfolio advisors. There’s no one like us on the market!
Join thousands of successful REI Nation investors today!
