What will happen to home prices in 2021 — how buyers and sellers can prepare

Considering buying a home this year? Take a look at where home prices may drop or increase in 2021. (iStock)

It’s been one year since the coronavirus pandemic disrupted the U.S. housing market. Since then, though, residential real estate remained resilient as record-low mortgage rates drove growth in home sales.

However, COVID-19 also created a seller’s market in 2020. A seller’s market is when housing demand exceeds the supply of housing inventory while a buyer’s market is the exact opposite — the housing inventory supply is higher than the demand. In a competitive real estate market, buyers often need to make an offer above the listing price, and bidding wars are common. The biggest downside of the hot real estate market in 2020 was rapid home price appreciation.

As we begin to see a light at the end of the tunnel with more vaccinations reaching American arms, it has many wondering what’s in store for this year's housing market. If you’re considering buying a home, Credible can help you ​compare multiple mortgage lenders​ at once in just a few minutes. Use Credible’s online tools and get prequalified today.

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Will home prices fall in 2021?

When shutdowns began in early 2020, it seemed many Americans opted to leave densely packed metropolitan areas like New York City and San Francisco in favor of suburbia. This urban exodus was fueled by remote working making it easier to leave big cities and job loss forcing many to expand their search out of state.

According to CoreLogic’s home price index, home prices increased by 9.2% year-over-year in December 2020, the highest annual gain since February 2014. Meanwhile, Realtor.com's housing market forecast for 2021 is that sellers will continue to get top dollar as home prices stay high, making affordability for buyers a challenge. You can use a mortgage calculator to estimate potential monthly payments and check out personalized prequalified mortgage rates by visiting Credible.

The National Association of Realtors estimates annual median home prices to increase by 8.0% in 2021 and by 5.5% in 2022. Right now, it’s better to be a seller than a buyer.

“Home prices are growing monthly right now,” says Chuck Belden of Hunter Rowe Real Estate. “There’s no sign that I see of this switching to a buyer’s market anytime soon.”

If you're planning a home purchase, you can visit a multi-lender marketplace like Credible to see if you qualify for a mortgage based on your current credit score and salary.

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Where to expect a price drop or increase

Because housing inventory is so low, home prices are being raised across the board.

The U.S. Northeast has seen the highest national home price appreciation at 5.5% from December 2019 to December 2020. Other areas of the country weren’t too far behind. The West saw growth at 3.3%, Midwest at 3.2%, and the South at 2.0%.

Areas with the highest home price appreciation from December 2019 to December 2020:

  • Columbus, Ohio: 16.9%
  • Rochester, New York: 16.6%
  • Philadelphia, Pennsylvania: 15.2%
  • Birmingham, Alabama: 14.7%
  • Phoenix-Mesa-Scottsdale, Arizona: 13.8%

If you’re looking to purchase a home in today’s market, you can explore your mortgage options by visiting Credible to compare rates and lenders and get a mortgage preapproval letter in minutes.

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What are the current mortgage rates?

As reported by Freddie Mac, US weekly averages as of February 23 are:

  • 30-year fixed-rate mortgage: 2.97%, up 0.16% the week prior, but down 0.48% a year ago
  • 15-year fixed-rate mortgage: 2.32%, up 0.13% the week prior, but down 0.61% a year ago
  • 5/1-year adjustable-rate mortgage: 2.99%, up 0.22% the week prior, but down 0.21% a year ago

In an effort to stimulate growth during economic decline, the Federal Reserve can influence mortgage interest rates through monetary policy, such as when debt securities in the marketplace are bought or sold. In March 2020, the Federal Reserve announced that it would buy billions of dollars in Treasuries and mortgage-backed securities. This supported the flow of credit and lower mortgage rates.

Whether you’re considering buying a house or refinancing, you can explore your mortgage options by ​visiting Credible​ to compare rates and lenders.

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Home buying tips in a seller’s market

Considering buying a home in today’s market? You need to be prepared. “It’s crazy. I’ve never seen anything like this in 13 years [of real estate],” says Belden.

Here's his top two tips on staying competitive in a seller’s market:

  1. Find a buyer’s agent who knows what they’re doing
  2. Get your finances in order

1. Find a buyer’s agent who knows what they’re doing

Today’s real estate market is a challenge and buyers need an agent who has the team and resources in place to get the ball rolling quickly.

2. Get your finances in order

Don’t go out and start looking at houses until you know what you can afford. What’s your monthly payment? How much can you afford to make as a deposit? Know your financial situation inside and out and speak to a lender to get preapproved for a home mortgage loan.

Are you ready to purchase a home? Visit ​Credible to get in touch with experienced loan officers​ and get your mortgage questions answered.

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