2020 was a year of chaos and unprecedented circumstances. Since the COVID-19 pandemic struck the world, the economy derailed until the remaining days of 2020. Real estate markets established record-low mortgage rates amid the global crisis keep the economy afloat.
Simultaneously, the alternative work arrangements and classes going online pushed a spike in relocation rates. It is important to consider the real estate market situation in whatever area you’re considering investing in. The battle against the deadly virus is also far from over. As a real estate investor, you must be well-equipped with accurate data concerning the global pandemic’s impact.
Before we kick off a whole new year, here are the effects of the previous year and expectations for 2021:
Long-term Impact of 2020 on Real Estate Demand
When calculating how the last year would affect the real estate demand in 2021, we need first to look into the supply inventory. Acquiring months’ supply of inventory data can provide a clear picture of the current market conditions. Knowing the volume of transactions, fluctuation of prices, and mortgage interests allow you to come up with an estimate on when properties can sell.
Every six months serves as a scale with a moderate price appreciation, which is normal and balanced if the prices increase by 2% to 3%. Texas has not reached a balanced market since 2008. In the past year, Austin reached 2.1 months of inventory. Lower months’ supply of inventory indicates a higher demand and a spike in property pricing.
Texas property prices are at an all-time high, with the median listing price at $359,739. In comparison, the average pricing all over the US starts at $345,500. While there is a slight difference with the average prices, experts find it a practical reason for people to look for other options. As a result, a growing number of Texans expect to lean towards property rentals instead.
Thus, higher occupancy rates for rental units will make sense for the Texas real estate market in 2021.
How Does This Affect You?
The market expects tremendous competition in scoring affordable properties for people considering relocating to Texas or acquiring a starter home. Make sure that you begin your search as early as today to find the right home for you. With Herman Boswell Property Management’s help, you can gain better insight and assess a plethora of options suitable for your budget and needs. You can access property listings around Texas, which includes both new construction and up-and-coming developments.
The Future of Mortgage Interest Rates
While assessing the mortgage interest rates over the last years, it is typical for a 30-year fixed-rate mortgage to cover 1.75% of the 10-year U.S. Treasury bond. As you know, a year of US Treasury bonds amounts to 0.7%. The addition of 1.75% to the 10-year Treasury results in a 2.45% mortgage interest rate. This inflation accounts for the mortgage interest rates of today.
Granted that we enter an economic recession when the crisis continues, the federal law mandates industries to decrease the rates to 2.5%. This opportunity aims to provide homeowners the ability to bounce back. Many experts anticipated this would happen in 2020, but mortgage forbearance risks can agitate the market.
Millennials and Gen Z: The New Generation of Buyers
Millennials and Gen Z’s are the frontiers of the preceding generations and play a fundamental role in the real estate market’s future. The oldest generation of millennials will turn 40 in 2021. They account for a considerable portion of trade-up buyers that have lived long enough to measure their equity gains. In contrast, younger millennials go forward to their “roaring 20s”. They are gradually building their properties and assets similar to older Gen Zs (24-year-olds) this year.
The recent data revealed that Millennials and Gen Z gamble with more significant debts to take advantage of low mortgage rates. Despite the soaring prices of 2020 property listings, they (38%) did not seem to hesitate to make down payments. In other words, they are lowering their mortgage budget, and their home search standards are never in question when looking for properties. Most of them are motivated to live in neighborhoods with expensive properties to guarantee safety and security. The remaining percentage of the people surveyed would prefer to lower their budget to earn more savings.
2021 Outlook for the Real Estate Market
The following factors imply that the downturn of the Texas real estate market is not likely happening this year:
- Over the years, the population of Texas has continuously increased. Texas population growth was peaked between 2000 and 2018, reaching over 7.4 million residents and homeowners. The primary reason behind this increase is associated with economic growth in the state and vast opportunities. Although the 2020 pandemic has affected Texas’s migration rates, its actual impact will likely come to fruition in 2021.
- Oil and technology are the cornerstones to the success of the Texas economy throughout the years. The past year prompted oil industries to decrease prices, which can potentially cause the economy’s downfall. However, Texas has been showing gradual recovery with its modest economic growth over the past months. Studies found that the unemployment rate decreased from 13.5% in April to 8.3% in September.
- Although Texas is declared one of the top states to provide plenty of job opportunities in 2020, the job growth rate rates significantly slowed down. Compared to the 2019 data (2.3% growth), its job growth rate is down to 1.6%. This growth rate will likely continue in 2021 as one of the adverse effects of the pandemic.
- According to the Market Recovery Index, a vast portion of Texas’ housing market surpassed the benchmark for recovery from the COVID-19 pandemic.
Your rental properties represent a significant investment. Protect that investment with a property management firm you can depend on. Contact Herman Boswell Property Management.