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Some Things Old, Some Things New: Predictions for 2021

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Published: 07 January 2021

The old year has ended.  (We stayed awake past midnight on New Year’s Eve, just to be sure.) Looking ahead, we’ve compiled an assortment of  predictions for those who prefer not to rely on their own crystal balls to anticipate what the coming year will bring. 

 ECONOMIC GROWTH

Year-end trends (soaring COVID infection rates, delayed vaccine roll-out, slowing employment gains, elevated unemployment claims the threat of lockdowns in many areas) put a damper or previously upbeat projections for growth this year.  The consensus view of economists calls for moderate growth at best and possibly a contraction in the first quarter, followed by sustained improvement the rest of the year.

Nancy Vanden Houten, lead US economist at Oxford Economics.

"While prospects for the economy later in 2021 are upbeat, the economy and labor market will have to navigate some difficult terrain between now and then, and we expect claims to remain elevated

Jeff Korzenik, Chief  Investment Strategist, Fifth Third Bank

Korenzik sees a double-dip recession as a possible but unlikely worst-case scenario.  His “conservative” forecast calls for GDP growth between 3 percent and 4 percent this year, with unemployment rates remaining elevated. “We think it’ll be a long, long time before we see a return to that 3.5 percent unemployment rate we saw pre-pandemic,” he told MiBiz.com.  Still, he remains generally upbeat. “We should have more than a glimmer of hope,” he predicts. “There’s a lot of good news on the way.”

INTEREST RATES

The Fed left interest rates unchanged at its final meeting of 2021 and Fed Chairman Jerome Powell has promised to keep them at zero has promised to keep them until targets for employment and inflation have been met. That’s not going to happen quickly, he told reporters at a year-end press conference.  “We’re honest with ourselves and with you…but even with the very high level of accommodation that we’re providing both through low rates and very high levels of asset purchases, it will take some time.”

EMPLOYMENT

Recent trends have not been favorable.  Employment growth has stalled and while jobless claims have fallen below pandemic highs, they remain almost four times the pre-pandemic average.  The roll-out of the vaccine is expected to boost hiring levels, but how much and how quickly are unanswered questions.

Guy Berger, principal economist for LinkedIn.

Berger fears a “triple whammy” – spiraling infection rates, reduced fiscal support for households and potential lock-downs to slow the virus spread, will depress  consumer spending and economic growth, increasing the risk of “a temporary stall or backslide” in the first quarter of the year.  “It’s really a question of how much businesses are feeling a crunch and adjusting head count versus ‘I see a light at the end of the tunnel so I’m willing to keep the hiring pipeline open even in these tough winter months,” he told the Wall Street Journal.

Josh Wright, chief economist, Wrightside Advisors
“How disruptive this latest surge is—that’s hard to say exactly, but clearly it’s going to be, but we’ve seen a preview of this, we know which direction it points in and we know it’s not the right one.” (Quoted in the Wall Street Journal.)

HOUSING MARKET

LAWRENCE YUN, CHIEF ECONOMIST, NATIONAL ASSOCIATION OF REALTORS

“[While] circumstances are far from being back to the pre-pandemic normal," Yun acknowledged.  But with another stimulus package in place, vaccine distribution underway and continued strong demand for housing, he thinks conditions are in place for “robust growth” this year.  .  New home  construction “will give consumers more choices, and more importantly, will tame home price growth,” he predicts. On the down side, he notes, "housing affordability, which had greatly benefitted from falling mortgage rates, are now being challenged due to record-high home prices. That could place strain on some potential consumers, particularly first-time buyers."

MATTHEW SPEAKMAN, ECONOMIST FOR ZILLOW.

Speakman and his Zillow colleagues see “a perfect storm” of market conditions that could produce “a buying frenzy” this spring. The company’s forecast anticipates a 23 percent year-over-year increase in home sales, setting records, but also producing “affordability challenges” for buyers.  “Record low mortgage rates, a wave of households aging into homeownership and a limited number of homes for sale all combined to stoke competition for houses and placed consistent upward pressure on prices for the better part of the last calendar year,” Speakman wrote in a recent column. “These factors appear likely to remain in place in the near term, and an incrementally improving economy should encourage more buyers to enter the market.”

DANIELLE HALE, REALTOR.COM CHIEF ECONOMIST

Hale predicts a 7 percent increase in sales year-over year and a 5.7 percent  increase in home prices “on top of 2020’s already high levels. Responding to a Forbes survey, she wrote:  “While we expect mortgage rates to tick up gradually, sales and price growth will be propelled by still strong demand, a recovering economy, and still low mortgage rates.

MICHAEL SKLARZ, BLACK KNIGHT DATA AND ANALYTICS

With government-mandated protections for financially strained homeowners expiring, Sklarz predicts that delinquency and foreclosure rates may soar.

 “This is of course assuming a Biden administration doesn’t extend the moratoriums currently in place,” he told DS News. “Regardless, we may very well see a meaningful increase in the number of homes listed for sale as these borrowers choose to sell at what is arguably an intermediate top in the market and downsize to more affordable homes rather than face foreclosure.”  The resulting surge in inventories could trigger a precipitous decline in hone prices, he warns.  “Combined with overbuilding of new housing units, this could create a situation not unlike that seen following the housing crash in 2007-2008, which took many years to resolve itself…. While there are still too many uncertain factors at play to outright declare a real estate bubble, we do see the potential for correction in markets both inland and coastal. It’s a critical situation that will require highly accurate data and experienced insight to analyze in the coming months.”

ROBERT DIETZ, SENIOR VICE PRESIDENT AND CHIEF ECONOMIST, NATIONAL ASSOCIATION OF HOME BUILDERS

The NAHB economist anticipates that builders will continue to ramp up the home construction pace, “albeit at a lower growth rate than in 2019. Favorable demographics, a shifting geography of housing demand to lower-density markets and historically low interest rates,” will keep buyer traffic and builder confidence high, he wrote in the Forbes survey. But rising construction costs, labor shortages and regulatory constraints will create “supply-side headwinds.”

TODD TETA, CHIEF PRODUCT OFFICER, ATTOM DATA SOLUTIONS

In his response to the Forbes survey, Teta identified several factors that “will more than likely keep this crazy housing market going.”  They include:  “Incredibly low inventory,” mortgage rates “at 50-year lows,” and no indication that the economic downturn has produced large numbers of distressed buyers.  He predicts that low inventories will continue to create upward pressure on prices through mid-year, but those pressures should ease in the second half of the year “and larger economic headwinds could start showing up.” Between now and then, he suggests, “buyers should be cautious and sellers jubilant….The future remains wholly uncertain and affordability could swing back into positive territory,” he cautions.  said Todd Teta, chief product officer at Attom. “But, for now, things are going in the wrong direction for buyers….”

SELMA HEPP, DEPUTY CHIEF ECONOMIST, CORELOGIC

Last year brought “its fair share of surprises,” Hepp told Forbes, and this year, she predicts, could still have more surprises in store for us.” But her expectations for the year nonetheless “remain generally positive,” primarily because she thinks interest rates will remain low enough to offset at least somewhat the affordability pressures that were building last year.

LOGAN MOHTASHAMI, HOUSING WIRE COLUMNIST.

“Don’t buy into any doom and gloom forecasts,” he advises, because housing trends, at least in the short term, “will moderate to a more normal trend…. Keep in mind that the years 2020-2024 have the best housing demographics ever recorded in history, which means we have a healthy number of replacement buyers,” he wrote. “Only higher mortgage rates can cool off demand – and that could be a good thing because the best housing market is a stable one.”

DARYL FAIRWEATHER, CHIEF ECONOMIST, REDFIN

Fairweather predicts that sales will increase by 10 percent year over year in 2021, the largest increase since 2006.  Existing home prices will also continue to rise, he says, pushing more buyers into the new home market.   “And because home buyers are now more eager to buy in suburban and rural areas where land is cheaper than in the cities, there will be more areas where homes can be built profitably.” The sure in homebuying activity, he predicts, will boost the homeownership rate above 69 percent for the first time in 25 years.

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