As the last days of the 2020 Des Moines real estate market come to pass, there are many national reports forecasting what will happen in 2021. If 2020 taught us anything, it is that predictions are not as easy as they used to be. In this issue, I’m looking at national forecasts and applying them to the Des Moines real estate market.
The cost of borrowing money to purchase a home in 2020 was historically low. That doesn’t automatically translate to affordability, however. With mortgage interest rates below 3% this year, home buyers were able to increase their ability to find more homes in a record low inventory market.
However, even as the Federal Reserve works to keep rates around the 3–3.5% range into 2021, the real challenge for buyers is to stay within their means and buy smartly so they don’t put themselves in a position that they have maxed out their income to debt ratios. Just because the cost of borrowing money is “on sale” doesn’t mean that buyers should spend to their limit.
- Central Iowa home buyers may find it frustrating to have the opportunity to buy using such low mortgage rates yet not have the selection of homes to choose from.
- There will continue to be high demand and low inventory through 2021.
Home Pricing in 2021
A change in sale price year-over-year isn’t the same as home appreciation values. Overall, in the Metro, the sale price of homes sold in 2020 were up by 5½%. If you look only at Single Family Resale properties, prices were up 7% and Condo-Townhome Resale properties ended up 3.3%. In the new construction arena, sale prices of new build Single Family homes were actually down 2% and Condo-Townhome new build sale pricing was down 2½%. This drop in average sale prices for new homes is explained by understanding that home builders spent much of the year catering to the entry level new home buyers in a market where resale inventory was extremely low. Many buyers found that with record low mortgage interest rates, they could reach the entry level pricing of new homes.
- With the continued high demand, especially of larger homes, expect buyers to push pricing upwards challenging appraisers to justify higher home values in 2021.
- New construction pricing will rise as a continued shortage of building materials affects that segment of the market.
Consumer Confidence & Employment
With a transition in national leadership and a Biden administration taking over in January, there is likely to be little change in homebuyer eagerness. The Central Iowa real estate market activity has proven that there is confidence in the local economy and the pandemic related seasonally adjusted state unemployment rates at the end of November were at 3.6% (compared to pre-pandemic 2.8% in November 2019).
And the recent announcement of a $900 billion covid relief bill bringing a new round of stimulus payments ($600 to most Americans including dependents) and the extension of unemployment assistance and much needed rental assistance is giving many Americans a chance to take a deep breath again. In addition, Covid-19 vaccinations have begun, starting with health care and front-line workers.
- With our local confidence growing and a return to more normal employment rates, 2021 should begin to see home sellers that have been staying on the sidelines the last couple of years put their homes on the market.
Home Buyer Demand and Home Seller Inventory
Clearly, 2020 was the year that experienced a severe imbalance of homebuyers to home sellers. It was truly a record-breaking year for home sales even as many homeowners pulled back from listing their homes and took a wait and see approach during the pandemic. Frustrated homebuyers rushed to new listings as they hit the market buying at a record pace that increased home sales in 2020 by over 15% from 2019, all the while the number of homes for buyers to choose from is down 40% from 2019.
- 2021 will be a building year (both new construction and the addition of resale properties) as home sellers begin to re-enter the housing market. Buyer demand will remain high and homes will continue to be purchased so quickly that inventory levels may not appear to rise.
- By watching Pending Sales activity and New Listings activity closely, we will be able to tell if we are gaining any ground in this area in 2021.
- The potential for another 16,000-sale year is certainly attainable in 2021.
Suburb Migration—Is It A Real Thing?
Earlier this year there was talk nationally about buyers moving out toward the suburbs during Covid-19. It appears that the Des Moines metro market is indeed seeing some Suburb Migration. The areas in Red show a positive percentage indicating an increase in sales compared to 2019. The brighter the Red, the larger the percentage.
Pleasant Hill on the east edge of the Des Moines metro leads the way with almost a 19% increase. Norwalk came in a just under a 12% increase. Interestingly, the very core of the city—Downtown Des Moines zip code 50309—saw a 10.8% increase in sales as a result of several pre-sales in new condominium projects. This data was calculated by comparing total unit sales by zip code in 2020 vs 2019.