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Real estate trends to watch in 2021

January 4, 2021 By Ryan Lundquist 22 Comments

What’s the real estate market going to do in 2021? Let’s talk about some of the emerging trends. Scroll quickly or digest slowly. Anything to add?

Market update at SAR: I’m doing a big market update at SAR on January 21st from 10-11:00am. Sign up here.

TRENDS TO WATCH IN 2021:

Continuation of aggressive market: My crystal ball is broken, but right now demand is truly excessive and inventory is about as low as it’s been, so for the spring season at least we seem poised to see the continuation of the competitive market we’ve had these past two quarters. Let’s remember one of x-factors why the market has been “on fire” though is rates below three percent.

Low inventory & vaccines: Housing supply is about half of what it should be locally and that’s the story in many areas around the country. There are many reasons why inventory is low, but the pandemic is a huge culprit. Frankly unless something happens to motivate owners to list their homes it’s hard to imagine normal inventory levels until we have a vaccine reach the masses and sellers feel more comfortable with buyers coming inside.

Thanks Sandra Schraeder for letting me use this photo.

Working from home: It was a game-changer for migration last year to see so many companies allow employees to work from home forever and this year we’re poised to see this trend continue. But let’s remember opportunities are uneven as the poor and low-wage earners are not likely to have increased mobility.

Buyer preferences: The pandemic has shaped buyer wants and needs and I suspect buyers will still target homes with larger backyards, built-in pools, larger homes, space for an office, and it wouldn’t be surprising to see condos be less appealing again this year.

The color of the year: This year Pantone has a twofer for their color of the year with both shades of gray and yellow. Gray has been prominent for years already. Do you think we’ll see more yellow?

Divorce: I was talking with a divorce attorney client the other day and he says his colleagues are all incredibly busy. While I don’t have statistics, I suspect the pandemic has caused life reflection and many couples have decided to call it quits. Of course having years of equity may propel this decision for some too.

Bubble concerns: Today I had two different people ask me what prices are going to do in the future (I didn’t give a specific answer). While we don’t have bubble hysteria, many prospective buyers are still wondering about future prices. Here are three truths to consider: 1) We’re now entering our tenth year of price growth; 2) It’s normal for markets to go up and down; and 3) What happened in 2005 isn’t the new template for every future market correction. For more thoughts see my open letter to buyers concerned about another housing bubble.

Uncertainty on the horizon: Housing headlines have been glowing lately, but let’s not get lost in the glory and forget we’re still in the thick of the pandemic and we’ve only scraped the surface of understanding the effect of the pandemic on the economy, job market, local businesses, foreclosures, and evictions. We need time see how all these things pan out.

Elimination of single family zoning: There’s a movement to do away with single family zoning to help create more housing and even undo some of the damage caused by past discriminatory practices such as redlining. In 2019 we saw Minneapolis do this by allowing up to three units to be built on a single family lot, and the City of Sacramento right now is talking about updating their general plan and moving away from unit-based density restrictions. This means instead of typically being able to build just one unit you could build a fourplex instead. For instance, read page 12 of this Sacramento City Council report (pdf). 

Racism in real estate: I expect we will see many more headlines about racism in real estate. Much of the conversation has focused on appraisers, but it will likely spread to other professions within real estate too. My advice? Listen, be a part of the conversation, and change as needed. If you are local and want to understand some of the history of redlining and restrictive racial covenants, check out this UC Davis talk by Dr. Jesus Hernandez.

Proposition 19: This California proposition just passed and it allows homeowners over 55 to transfer their primary tax base to a replacement residence. This is a big deal as it can free up mobility for a segment of the population. But the other side of Prop 19 is it’s now not so easy for heirs to retain the tax base of the previous owner. On my end working with heirs I’m hearing lots of talk about selling instead of holding. Though before predicting an avalanche of listings I suspect we’re going to see some creative ways heirs can still retain properties without residing in them. Let’s keep watching.

Affordability: Low rates have helped buyers afford the market more this year, but prices have also risen. At some point the benefit of crazy low rates is going to be diminished by lofty prices and we’re going to see the narrative shift to the struggle of affordability.

iBuyers may have a better year: This year wasn’t pretty for the iBuyer model because companies liked Opendoor and Zillow basically paused their operations during the beginning of the pandemic. Right now in the Sacramento region Zillow owns 32 homes and Opendoor owns 19 homes according to Tax Records. A couple years ago Opendoor regularly owned nearly 100 homes locally for reference. Ultimately the iBuyer model took a step back this year, but expect them to gain a little more share this next year. Let’s keep it all in context though because these companies have only a tiny sliver of the market despite getting tremendous press. 

1031 Exchanges: My analysis of local stats shows there are more 1031 Exchanges in an up market than a down market, so expect more of them this year. I’ve seen quite a few Bay Area investors park their money in Sacramento and I’ve seen some Sacramento investors move their money to lower-priced states. Of course lots of big companies such as Tesla have moved out of California recently. While that is a different thing, it’s something to watch because wealthy individuals and corporations are clearly weighing their options for where to park their money and businesses.

Goodbye California: Rising prices since 2012, the ability to work from home, and Boomers on the cusp of retirement will likely fuel more migration this year. Of course other groups will leave for other reasons too. I shared some migration stats last month from the American Community Survey and I’ll share more this year from other sources too. Stay tuned.

Other: What did I miss? What’s on your mind for the year?

RECAP NEXT WEEK: Stay tuned for a big market recap post with brand new visuals. Check out my social media this week for some previews (links on sidebar).

I hope this was helpful or interesting.

Questions: What else do you think will be important in 2021? Did I miss something? I’d love to hear your take.

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Filed Under: Market Trends Tagged With: aggressive price growth, Bay Area, COVID-19, Divorce, future housing market, housing market 2021, pandemic housing market, Pantone color of year, Prop 19, real estate bubble, Real Estate Market, sacramento housing trends, working from home

Reader Interactions

Comments

  1. Gary F Kristensen says

    January 5, 2021 at 8:58 AM

    Great discussion Ryan. You hit all the points. Things are busy now, but I am certainly concerned with how busy real estate is in relation to how many people are struggling. It just seems to me that eventually the reduced spending power of the struggling will come to the real estate market. Maybe we will see it in foreclosures first, particularly if those struggling don’t get to stay in their homes. You mentioned the eliminating SFR zones. In Portland, that starts August 2021. I’m watching to see how that plays out.

    Reply
    • Ryan Lundquist says

      January 5, 2021 at 9:07 AM

      Thank you Gary. Well stated. I didn’t know about Portland. We’ll be watching you guys first… I suspect we’re going to see this in more markets across the country. In my mind it will be key to have good design review.

      Reply
  2. Heather Ostrom says

    January 5, 2021 at 10:40 AM

    Great post. I think in some cases too – political choices even within their own neighborhood / schools (not just cost of living) are causing folks to leave some areas, not always out-of-state. Some are finally going to where they want to go, if they’re not worried (and hopefully not down the road) about a commute – if virtual working is a continued behavior. The dialogue about multiple units on a lot is a biggie for many of our clients. Some folks are realizing the limitations of their property working from home, others are considering bringing in family members to their home, and many are just trying to get that single-story home “forever home” not knowing how the future will look. It has been fascinating to see larger homes that might have been off the “A List” beforehand for cost and upkeep reasons – are now being considered again for distance learning or like you stated “a formal office space.” As always, thanks for assembling these great posts for concise thoughts of 2021 trends. Also, this graphic designer will never welcome Pantone swatch 13-0647 into the mix (yellow). Notgonnahappen. You are the best!

    Reply
    • Ryan Lundquist says

      January 5, 2021 at 12:12 PM

      Thank you so much Heather. I think you’re right about the reasons people leave. It’s not just about finances, though that certainly does help. Politics, fires, non-business friendly environment, etc… So I guess yellow isn’t going to overtake your orange then… 🙂

      Reply
    • Brandice Banta says

      January 5, 2021 at 5:23 PM

      Heather – I thought the same thing about that yellow! 🙂 I also agree with buyers looking for multigenerational homes or more than one home on a lot to accommodate multiple families living together.

      Reply
      • Ryan Lundquist says

        January 5, 2021 at 5:47 PM

        Thanks Brandice.

        Reply
  3. Johnny Morales says

    January 5, 2021 at 10:43 AM

    Excellent data reporting as usual Ryan. Glad you’re staying healthy.

    Reply
    • Ryan Lundquist says

      January 5, 2021 at 12:13 PM

      Thank you very much Johnny. I’m so grateful to be healthy. Happy New Year!!!

      Reply
  4. Dave Johnson says

    January 5, 2021 at 11:18 AM

    Ryan,

    Seems like the planners who think that increasing density by eliminating single family zoning are not understanding the current trends relating to Covid. Why are so many people are migrating out of densely populated cities to more rural regions. One reason is that living in densely populated areas is perceived as dangerous to your health by many. Of course there are other reasons but Covid has amplified rural demand. A recent article in the Napa newspaper talked of rising demand from Bay Area residents to more rural areas from Napa to Redding. The average price of single family homes has increased by 25% in Napa during the Covid pandemic according to that article. Seems kind of high but the increase is noticeable to many.

    So why planners would think that higher density is a great idea obviously don’t pay attention to the actual facts. People move to single family neighborhoods because they still want the American dream of a single family home in a single family neighborhood. Will that historic demand ever go away? It would be a sad day to see single family zoning disappear.

    Love to read your big city real estate news. So well written.

    Reply
    • Ryan Lundquist says

      January 5, 2021 at 12:19 PM

      Thank you Dave. I always appreciate your take. People are certainly craving more space. I think that’s why even in the Sacramento region we’ve seen less emphasis on condos. People simply want a larger backyard and they don’t want to feel confined where possible if they can afford a detached home. I think this is a long-term play to help mix multi-units within single family areas. The vast bulk of the market has single family zoning, so I think relaxing the rules is to help offset.

      Reply
      • Dave Johnson says

        January 5, 2021 at 1:45 PM

        Maybe some areas could handle that mixture but there are many neighborhoods that would be adversely affecting by mixing uses. By injecting multi-family use it could change the economic profile of the neighborhood and diminish demand and values. There are so many issues such as parking, conformity, traffic, and other infrastructure, that are accounted for with the various zoning requirements that could be impacted by more intensive use. I’m not a fan of zoning changes after the fact unless the change is in the normal course of events. Just because you can doesn’t mean you should.

        Reply
        • Ryan Lundquist says

          January 5, 2021 at 2:14 PM

          Parking and traffic are huge considerations for sure. I think adequate design review is going to be paramount also – especially in areas with older architecture. It is interesting because in California you can legally build an ADU and J-ADU on each lot now without increasing parking spaces from what I understand. This is something to watch for sure.

          Reply
  5. Randi says

    January 5, 2021 at 11:35 AM

    Excellent summary. I’m very interested in keeping tabs on the fall out from Prop 19 and how heirs can keep the current tax base of a property, especially if that property is in the Bay Area and was purchased in 1970… There is some significant appreciation there, but In my case, the inheritance will not come for many years. I’m hoping that there will be some creative ways around this or it gets overturned. It’s unfortunate that many people do not understand all of the implications of their vote.

    Reply
    • Ryan Lundquist says

      January 5, 2021 at 12:21 PM

      Thank you Randi. Yes, this is something to watch. Prop 19 was a real double-edged sword and the other side of that sword can be a big deal for heirs. Though there is a provision for keeping the tax base if the property becomes occupied by the heir. I have lots of reading to do on this ahead and I’ll certainly be listening to clients. I have definitely had multiple clients mention this in passing without any questioning from me. I’ll start asking more intentionally though to see what others are hearing and seeing.

      Reply
  6. Brad Bassi, SRA says

    January 5, 2021 at 11:44 AM

    First off before I rant, Happy New Year, Ryan. I truly hope that you and your family are doing well, along with safe and healthy. Ok here goes my rant, I will feel much better at the end….. I find it funny that Prop 19 even showed up. As it was already existed here in CA. They repackaged it so they could grab more Estate money for the State since they are so good at managing. Will see what happens on that front with the heirs dealing with tax issues. My bigger concern and one that was not mentioned is the issue over the wildfires and what WILL happen to the rate increases via the PUC and the potential issues with the three utility companies here in the state. That too could impact those wanting to stay and how things work in the state. As to the no SFR zoning, I must be under a rock or to much time in the saddle as I hadn’t heard about that item. That will make it interesting for the AVM. Let them try and figure out how to price that SFR in the middle of a bunch of 2, 3 and 4 unit buildings. So maybe that is a blessing for the newer / younger appraiser coming into the profession. I understand the housing shortage per se, but not sure how that fixes it without creating a whole bunch of other issues. The local and state agencies need to be careful with that one. Okay now I feel better, let me go deal with another attorney. All my best and Happy New Year to the Whole World of Ryan…….. Be safe and Healthy

    Reply
    • Ryan Lundquist says

      January 5, 2021 at 12:24 PM

      Thanks Brad. I appreciate your cowboy commentary as always. I did not mention any wildfire issues. This topic was all the rage last year, but it seems along with affordability it has been dwarfed lately by sensational stats and hot headlines. We’ll get around to these important topics again because they aren’t going away…. Happy New Year!!!

      Reply
  7. Elizabeth Axelgard says

    January 5, 2021 at 2:21 PM

    Ryan ty yet again for the excellent update. Hoping on your next migration report you include Tennessee!

    Reply
    • Ryan Lundquist says

      January 5, 2021 at 2:31 PM

      Thanks Elizabeth. TN really didn’t make the top of the list in the dataset I used in the past (American Community Survey). I still need to pour through some recent US Census Bureau stats as those can be slightly different. I did see an article yesterday on U-haul ranking TN as #1 for migration growth. Though the ranking isn’t is based on the comparison of trucks going in and out of the state rather than sheer volume. It’s interesting nonetheless. https://www.prnewswire.com/news-releases/2020-migration-trends-u-haul-ranks-50-states-by-migration-growth-301200360.html

      Reply
  8. Cleveland Appraisal Blog says

    January 5, 2021 at 6:02 PM

    Nice comprehensive coverage of some hot issues! The Cleveland market, much like Sacramento’s is suffering from historically low inventory with high demand. It will be interesting to see what happens in 2021. Quite possibly a repeat of 2020, but with it’s own flavor. There are so many variables at play right now, it will be interesting to watch things unfold.

    In other news, I have completed a record number of appraisals for divorces in 2020. I agree that the pandemic has played a role in this as well.

    My best to you in 2021 Ryan! Keep up the great work!

    Reply
    • Ryan Lundquist says

      January 6, 2021 at 9:08 AM

      Thanks Jamie. Yes, there are definitely different variables and unknowns to watch. Congrats on your success this year. I know getting an appraisal isn’t always for a happy reason, but someone has to do it. Blessings to you and your family in 2021.

      Reply
      • Cleveland Appraisal Blog says

        January 6, 2021 at 11:12 AM

        Yes indeed! Thank you my friend! I wish you and your family health and happiness in 2021! ?

        Reply

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