2021 housing market forecast: It’s about politics, not economics

2021 housing market forecast: It’s about politics, not economics
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As we prepare to enter 2021, our country has lost more than 250,000 people and over 22 million jobs during the 2020 pandemic. Millions of others have suffered from COVID-19 complications, both health and economic related. At the same time, the housing market has shown surprising resilience, with price growth and home sales rising to new heights.

How is this possible? Quick policy action from all levels of government protected vulnerable households from slipping into foreclosure and eviction. However, many of these protections are set to expire in the new year. Without renewal, our housing market forecasts show 2021 could highlight the underlying economic damage from the pandemic. 

Last April, we released the first of our series of monthly housing market forecasts. Our forecasts generally followed a “Flying W” shape, with an initial sharp drop this spring, a noticeable rebound in the summer followed by another dip in the fall, and finally, a stable road to recovery sometime in 2021. These forecasts have been based on assumptions that – because of a split congress – protective economic policies would be hard to come by. Thankfully, this assumption proved to be wrong during the first wave of the pandemic, with congress providing generous protections for U.S. households and the federal reserve and treasury providing support for financial markets. As a result, the U.S. housing market was spared catastrophe.

Unfortunately, a third wave is upon us at a time of peak political division in the country. The protections for U.S. households and support for financial markets are set to expire at the end of the year, congress is split, and the outgoing administration is sending signals they are going to let next year’s congress and administration sort out a new relief package. Our forecasts below reflect the political uncertainties concerning a renewed relief legislation.

2021 housing market

Across our five indicators, our housing market forecasts of single-family home sales and purchase mortgages show the largest potential hit in 2021 stemming from the possibility of higher rates and lower supply of mortgage credit. Without renewed protections for homeowners and support for our financial institutions, home sales could start the year off by falling 12% to 20% on a year-over-year basis.

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