Outlook: U.S. Home Prices Will Keep Rising Through 2021 and Into 2022

Key highlights from this report:

  • U.S. home prices rose steadily in 2020, despite the coronavirus pandemic.
  • Forecasts suggest prices will continue rising through 2021 and into 2022.
  • Tight inventory conditions and low mortgage rates play a big role.
  • But conditions vary widely from one real estate market to the next.
  • Austin, Boise, Seattle and Tampa are expected to “outperform” in 2021.

Rising prices graphic

We’re about a year into the coronavirus health crisis here in the U.S., and one thing is for certain. It hasn’t had much impact on the real estate market.

In fact, 2020 was a banner year for the real estate and mortgage industries. Despite a slowdown back in April, home-buying demand surged throughout most of last year. And home values rose right along with it.

But what about the future? Will home prices in the U.S. keep rising throughout 2021 and into 2022? Based on current trends and forecasts, that seems likely.

In most cities across the country, home prices will almost certainly continue to climb through the rest of 2021. Limited supply and strong demand are putting strong upward pressure on house values, and that’s unlikely to change anytime soon.

A Big Year for the Housing Market, Despite COVID

According to the real estate data company Zillow, the median home value in the United States rose by 8.4% over the past year or so. That’s based on the latest data available, as of February 2021.

Similarly, a February 2021 report from Realtor.com revealed that the median listing price for homes in the U.S. rose by a whopping 15.4% over the past year or so. Those double-digit gains occurred between January 2020 and January 2021.

This might seem surprising. After all, we were experiencing a global pandemic and economic downturn during most of that timeframe. But there is no denying the data. U.S. home values rose steadily over the past year, despite the coronavirus pandemic.

Prices are expected to continue rising through the rest of 2021 and into early 2022. Beyond that is anyone’s guess.

US home prices chart Feb 2021
Chart: U.S. home values over the past decade | Source: Zillow.com

The chart above shows the median home value in the U.S. going back ten years. You can see where prices “bottomed out” in 2012, following the last housing crash and economic recession. Since then, it has been up, up, and away. Notice how the upward curve grows even steeper in 2020.

Outlook: U.S. Home Prices Will Keep Rising in 2021

The research team at Zillow issued a bold forecast for U.S. house prices throughout 2021. This month, they predicted that the median home value in the U.S. would rise by around 10.5% over the next year.

In February, the company’s website stated:

“United States home values have gone up 8.4% over the past year and Zillow predicts they will rise 10.5% in the next year.”

Housing analysts from the mortgage-buying giant Freddie Mac also issued a positive forecast for house prices throughout 2021.

In their latest quarterly forecast, issued on January 14th, Freddie Mac’s researchers said they expect home prices to rise by around 5.4% during 2021. That’s quite a difference from the Zillow forecast mentioned above. But then again, these forecasts are the equivalent of an educated guess based on current conditions. They’re far from certain.

Main Reason: Lopsided Supply and Demand

So, the general consensus forecast is that home values in the U.S. will continue to rise throughout 2021 and into next year. Beyond that, housing analysts expect price growth to decelerate, slowing to a more normal rate of appreciation.

The big gains we’ve seen over the past year are not sustainable over the long term. We will likely see a slowdown in the near future – and possibly later this year — as more and more buyers get priced out of the market.

The question is, what’s causing all of this above-average price growth? How is it that home values in the U.S. continue to climb at a time when there is so much unemployment and uncertainty?

The answer can be summed up in three words. Supply and demand.

Right now, most housing markets across the country are still experiencing supply shortages. In most U.S. cities, the number of homes currently listed for sale is not enough to satisfy the demand from buyers.

  • So we have a classic imbalance between supply and demand. There is plenty of demand, with buyers competing fiercely for properties in spite of the ongoing pandemic.
  • But there’s not enough supply, in the form of real estate listings.

You don’t have to be an economist to realize that prices tend to rise under such conditions.

According to the Realtor.com report mentioned earlier, home buyers across the United States are still grappling with tight supply conditions. In addition to increasing competition, this also pushes home prices north.

To quote the February 2021 Realtor.com report:

“If January provides any insight into what to expect this spring, home shoppers are in for another fiercely competitive home-buying season with record low inventory pushing prices higher and homes selling more quickly…”

Low Mortgage Rates Have Increased Demand

The supply-and-demand imbalance mentioned above is the primary factor driving the steady home-price gains of 2020 (and the positive forecasts for 2021). But mortgage rates play a role here as well.

During the first week of 2021, the average rate for a 30-year fixed mortgage loan hit an all-time record low of 2.65%. Rates have been hovering at historically low levels for months, luring buyers into the housing market.

This factor, combined with COVID-fueled aspirations for square footage and “breathing room,” have given the real estate market a strong boost.

Mortgage rate chart Feb 2021
Chart: Average 30-year mortgage rates | Source: Freddie Mac PMMS

The chart above shows the average rate for a 30-year home loan going back three years. It’s based on the long-running weekly survey conducted by Freddie Mac. Notice how low mortgage rates are today (right side) compared to previous years (left side).

Related: Will rates start to rise this year?

This is one of the reasons why home prices in the U.S. rose steadily during 2020, and why they’re expected to keep rising throughout 2021.

Conditions Vary From One Housing Market to the Next

The forecast for the nation as a whole predicts that U.S. house values will continue rising throughout 2021. But, as we know, real estate market conditions can vary significantly from one city or region to the next.

Some cities could experience an average level of appreciation this year, while others could rise by double digits. Some housing markets might even level off in 2021. But overall, forecasts point to additional price gains.

Over the past year, some cities have experienced significant price growth that far exceeded the national average. And we will likely see more of that this year, as well.

The biggest gains of 2021 will probably occur in cities like Austin, Texas; Boise, Idaho; San Jose, California; Seattle, Washington; and Tampa, Florida. These and other hot real estate markets are currently experiencing strong demand and record-low inventory levels. Most of them are also grappling with affordability issues, as house prices continue to climb.

Cities to Watch Include Austin, Phoenix and Nashville

Last month, researchers from Zillow published the results of a housing survey they conducted. They asked a panel of more than 100 economists, real estate experts, and investment advisors which U.S. housing markets were most likely to “outperform the national market by the largest margin” during 2021.

In other words, they wanted to know which cities might experience the most competition and biggest price gains this year. Austin, Texas led the charge.

To quote their January 2021 report:

“The Zillow Home Price Expectations Survey … also asked about their expectations for 2021 home value growth in 20 large markets compared to the nation. An overwhelming 84% of those surveyed said Austin values would out-perform the national average…”

Here are the top five cities singled out by the survey respondents:

  1. Austin, Texas
  2. Phoenix, Arizona
  3. Nashville, Tennessee
  4. Tampa, Florida
  5. Denver, Colorado

Pop quiz. What do you think all of these cities have in common? You guessed it … strong demand and limited supply.

While these are common traits for many housing markets across the country, they are most pronounced in cities like those listed above. These and other hot real estate markets across the U.S. could see home-price gains of 10% or more during 2021.

Disclaimer: This report includes forecasts and predictions offered by third-party sources not associated with the Home Buying Institute. Such projections are the equivalent of an educated guess. HBI makes no claims or assertions regarding future real estate conditions.