December existing home sales figures were the latest proof of the housing market’s resilience to pandemic-related factors, and the culmination of the best year for home sales in almost 15 years. Though it did slow transactions down briefly in the spring, COVID-19 did nothing to diminish demand for housing over the past year. The pandemic may in fact have pushed more people into the market as they reconsidered their housing wants and needs in light of increased telework flexibility and/or a need for more or different space during quarantine. This elevated demand — boosted further by historically low mortgage rates and a demographic wave of 20- and 30-somethings aging into homeownership — and the rampant competition over homes that followed, pushed down the typical time on market for sold homes by almost a month compared to December 2019. The strong growth in sales activity that became commonplace in the summer may have recently slowed, and the scorching pace of home price appreciation will likely limit buying opportunities for some home shoppers. But with the demand unlikely to ease in the near future, mortgage rates expected to stay low and the economy primed to gradually improve in the months ahead, this elevated pace of home sales appears likely to endure into 2021.
Same goes for home values, which, in December, were growing at their fastest pace on record. The Zillow Home Value Index, or ZHVI, increased by 3.2% in the three months ending in December 2020 – the strongest quarterly uptick since at least 1996, when Zillow’s records begin. While home value appreciation is generally strong across the country, it was particularly robust in a number of metro areas, many of which are in the nation’s southern Sun Belt. Home values in Austin grew 5.3% in the past quarter, while home values grew 5.1% over the same period in Phoenix, San Diego and Salt Lake City. For now, there are no indications that price growth is going to slow. Our latest forecast predicts annual home value growth will rise as high as 13.5% by mid-2021, and for home values to end 2021 up 10.5% from their current levels.
2020 will also go down, quite unexpectedly, as one of the best years for home builders in recent memory, and it too ended on a high note. But while demand for housing remains red hot, supply-side constraints that have hindered homebuilders for years have recently become even more acute. A shortage of available land and labor and exceptionally volatile materials’ prices, which skyrocketed in recent weeks, have combined to hold building activity in check and made it difficult for builders to truly operate at their full capacity and keep up with demand. But even though they may be slightly hobbled, builders remain optimistic. They also appear to be operating smartly — focusing more on single-family building projects to meet demand, rather than longer-term, more-complicated multifamily development — and keeping the permit pipeline full, guaranteeing more strong months to come in 2021.
Click here to read past editions of Zillow’s Market Pulse updates.