Realtor.com reveals the top U.S. housing markets for growth in 2021

Yahoo Finance’s Alexis Christoforous and Danielle Hale, Chief Economist at Realtor.com, discuss the top U.S. markets for growth in 2021 and impact of COVID-19 to housing.

Video Transcript

ALEXIS CHRISTOFOROUS: It looks like strong pandemic induced demand for housing is still here, but buyers may now be hitting an affordability wall. Here to talk about the outlook for housing is Danielle Hale, Chief Economist at Realtor.com. Danielle, always good to see you. So are you getting the feeling that housing-- I mean, it's been red hot this year-- are things starting to cool right now? What's your take?

DANIELLE HALE: So yeah, we had some data recently on pending home sales. It suggests that they stepped back a bit. And I think the question is, are things starting to cool? Yes. But what is the context broadly speaking? And the answer is real estate is still quite hot. So even though pending home sales stepped back 1.1% for the month, It is still up more than 20% from a year ago. And that ties really nicely into our outlook for 2021, which is real estate may have some down months, but it's definitely going to remain strong going into the new year.

ALEXIS CHRISTOFOROUS: But when I look at these numbers, and I look at what homes are selling for, it looks like it's a seller's market right now. And that more and more people are going to have a tough time running after fewer properties, because again, the supply of homes continues to be quite tight. So would you say that this is a seller's market heading into 2021?

DANIELLE HALE: It is. In fact, if you look at our monthly data, we see that the number of homes for sale is down almost half a million compared to where we were at this time last year. At the same time, we've got a lot of buyer interest thanks to record low mortgage rates. That creates a perfect storm, if you will, for prices to be rising.

And we have seen prices rise. According to our November data, they were up 12.7% from a year ago. So it's rising prices. Lower mortgage rates help offset some of the affordability challenge. But as we look ahead into the next year, we expect that we won't be hitting record lows again in mortgage rates, and so instead of being this nice offset for higher home prices, we'll start to maybe move in the other direction and create an additional challenge on top of rising home prices.

ALEXIS CHRISTOFOROUS: Do you see inventory starting to loosen up a little bit, especially when you look out to the springtime, which is traditionally a busy time for the real estate market? Do you think that come April and May, we might start to see inventory start to build up?

DANIELLE HALE: So I don't know that we'll see inventory build up, but we do expect to see more homes come for sale this year compared to last year. Because if you'll remember, Spring 2020, that was right when the coronavirus had started to reach US shores, and people started to really react to trying to stop the spread of the virus. So we saw a spring home-buying season essentially curtailed very early on, and it didn't resume until in the summer. So we expect to see more listings in spring of 2021.

But still, so we'll see some growth on a year-over-year basis, but it's still going to be relatively tight. We expect the housing market to move relatively quickly. We don't expect the amount of inventory to really catch up in a sustainable way until later in the year. That's when we might start to see an actual year-over-year increases in the number of inventory on a sustainable basis, when we're not comparing a pandemic period to a non-pandemic period.

ALEXIS CHRISTOFOROUS: What about inventory in densely populated cities? Is it tougher for sellers to get their asking price there, just because we have seen a number of people move out of the cities and go to the burbs, or go out to more rural areas during this pandemic?

DANIELLE HALE: That's, an excellent question. So real estate, the mantra is always local. Real estate is local. And of course, depending on where you are, you're going to see different phenomenon. So big cities may have some slightly different conditions. We've actually done some projections of our top housing markets for 2021, and there are some large cities on the market, but not the biggest cities.

Our number one market in 2021 is Sacramento, California. It is benefiting from the fact that a lot of Bay Area tech workers have flexibility to work remotely. And so they're uprooting, not just to the suburbs, but to an entirely new metro area, Sacramento, which is not too far from the Bay Area. And so it provides a nice benefit of affordability, especially compared to the steep prices in San Francisco.

ALEXIS CHRISTOFOROUS: I was looking at your list of top spots, and Harrisburg, Pennsylvania is one of them. Any idea why that area is garnering so much attention right now? Because the list is really dominated by cities on the West Coast.

DANIELLE HALE: Yeah it absolutely is. Harrisburg is uniquely well-positioned. It's not a far drive from New York, from Philadelphia; from Baltimore; from the Washington D.C. area. And if we're moving to a future where you can work anywhere, Harrisburg means you're well positioned to get into any of these markets if you have to go into the office occasionally. And so, especially as we're moving into an economy that's still struggling from an employment perspective, it's nice to be in a place where you have lots of flexibility. And so you can job search in many different markets, and still not be too far from your new home.

ALEXIS CHRISTOFOROUS: What do you think is one of the major wildcards, or possible headwinds for residential real estate in the new year, Danielle?

DANIELLE HALE: Well of course, the overall economy matters hugely for real estate. So people have to be in a good situation not only today, but be confident about their situation going forward. They need to make sure that they've got a good job, and that they're confident they'll be able to keep that job.

And of course, as we've heard from several economic policy and decision makers, the progress of the economy is really dependent on what happens with how we handle the coronavirus; how the vaccines are rolled out. The faster those are rolled out; the more widely they're available to the general public, the faster we can get the economy back to normal.

In the meanwhile, making sure that we're continuing to keep the virus as contained as possible is going to help give people the confidence to participate in the economy, and that's going to be the best thing for the housing market going forward.

ALEXIS CHRISTOFOROUS: All right Danielle Hale, Chief Economist at Realtor.com. Thank you.