The 2021 Housing Market Forecast

“The housing market is a bright spot in the current economy, and you can expect it to continue.”

By Kathy Feist

Rob Dietz, chief economist for the North American Home Builders (NAHB), called it a “Black Swan event.”

The positive impact the pandemic had on the housing market in 2020 was not something he accurately predicted at last year’s Home Builders Association of Greater Kansas City Annual Economic Forecast Breakfast.

“I was still not believing we would see a big impact on the housing community due to the coronavirus even by late February,” he said at this year’s HBA breakfast webinar held January 21. Still, it didn’t stop him and local economist Chris Kuehl, managing director at Armada Corporate Intelligence, from making new predictions about the upcoming housing market.

“The housing market is a bright spot in the current economy, and you can expect it to continue,” Dietz summarized. But no economist is without his statistics, and there are plenty looking back at 2020 and into 2021.

Coronavirus – Both economists agree tight restrictions will lift by the second quarter with 50% of the population vaccinated. This will accelerate growth in the economy. But as economic growth goes up, so will interest rates. Expect to see the average rate for a 30-year mortgage inch up from 2.75% to somewhere below 4% by the end of 2021, according to the NAHB.

Housing starts – New residential construction increased 11% this past year. In 2021, it is expected to decrease to 5%, still twice as high as 2019’s numbers.

Permits – The Kansas City area saw a 28% increase in single family home permits last year, according to the NAHB’s numbers based on a U.S. Census Bureau survey. (The KCHBA numbers are 13%, which includes the number of permits pulled in the surrounding eight counties.)

Home sizes – Single-family homes have continued to decrease in size, averaging around 2,300 square feet. This trend is most likely due to baby boomers downsizing. But Dietz expects that may change if the trend to work from home continues after the recovery. A survey from the NAHB found that households with teleworkers and virtual students were more likely to want larger households.

Second homes – The population began to shift from urban areas to the suburbs in 2020 as workers began telecommuting and chose to escape higher density areas. Following that trend is a 9% increase in construction of homes in second home counties.

Multi-family housing – While construction of multi-family housing was down nationwide, Kansas City experienced an 8% increase, making it an outlier in the national trend.

Remodeling – Remodeling increased by 6% in 2020 as people began to use their homes for more purposes. That number is expected to decrease to 4% in 2021.

Commercial – As might be expected, non-residential construction was down in 2020 and is expected to take four years for recovery. One bright spot is warehouses and industrial parks, which have seen a growth in construction due to online shopping.

Supplies – The price of lumber increased 180% from April to September and is expected to increase in 2021, making the cost of a typical home $16,000 more expensive. The inability for mills to keep up with demand also involves a longer construction time. Also in short supply are lots, which Dietz hopes might improve with changes in zoning laws.

Renters – The pandemic hit the service sector the hardest in 2020, particularly restaurants, hotel and retail industries. Employees who tend to have these jobs rent rather than own housing, which is why the rental market has been more adversely affected by the pandemic, according to Kuehl. “But when these jobs do come back, they will come back quickly,” he said. Service jobs such as transportation and warehousing, on the other hand, have exploded due to the coronavirus shutdown.

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