Housing market forecast: home prices are skyrocketing in the US, but will it continue?

The latest housing market forecast is showing rapid home price growth and huge demand

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Thinking about selling your home? This year may the time to do it. The most recent housing market forecast from real estate site Redfin is showing exceptionally strong demand for housing, record-breaking home prices notwithstanding. 

As of the week ending January 3rd, the median US home prices increased by 13 percent year over year – an increase that almost matches the pre-Christmas hike of 14 percent. What is behind the continued home price increases during what is normally a quieter time of year?

couple looking in an estate agent's window

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According to the Redfin Homebuyer Demand Index, the number of people looking for a home right now is 32 percent higher than it was the same time a year ago before the pandemic hit. The opportunities for moving to cheaper areas are now far greater for a large number of people than they were before increased remote working made them rethink what's possible. As Redfin chief economist Daryl Fairweather points out, 'the recent migration of Americans to affordable places like Atlanta, Phoenix and suburbs across the country has contributed to what will be a major change in fiscal and economic policy starting on January 20.' 

What could these changes include? Fairweather believes that we'll see increased government spending in the housing sector, which 'could lead to moderate mortgage-rate increases', but 'will also likely include programs to make homeownership affordable to more people.' As it stands, 30-year mortgage rates are at a record low of 2.65 percent, which has been offsetting some of the effects of increasing home prices. 

'However, there's no denying that if sale prices continue to climb at this rate, affordability will plummet even in areas that are experiencing a surge of demand precisely because prices there are cheaper.

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'The current sense of political instability and rising coronavirus cases are unlikely to have a meaningful or long-term impact on homebuying demand, which, already is extremely strong'. 

Economic policies designed to bolster the affordability of homes will likely help some buyers – although it doesn't solve the problem of fewer active listings available (32 percent fewer than the same time in 2020). 

The main takeaway from this housing market forecast is that with limited supply and exceptionally high demand, home prices are likely to continue rising. However, with new policies on the horizon, there may be increased opportunities for affordable home ownership at least for some buyers. Provided mortgage rates stay low, the US is going to see an even more widespread migration from larger metropolitan areas to smaller ones in 2021.