Will the U.S. Housing Market Crash in 2021? (No, and Here’s Why)

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  • “Will the U.S. housing market crash in 2021?”
  • It’s one of the most common questions from our readers, lately.
  • It seems unlikely that the housing market will crash in 2021.
  • Low mortgage rates, tight supply, and job gains could prevent that.
  • In the past, Trump has voiced a strong preference for downturns.

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It happens every year around this time. The Home Buying Institute (HBI) begins to receive a steady influx of emails from readers who are wondering what the next year will bring, in terms of real estate trends.

In response to such queries, we typically publish a long-range outlook full of real estate predictions for the upcoming year.

But this year is different. In addition to the usual questions, a lot of people are apparently concerned about a severe downturn in the market. “Will the housing market crash in 2021?” tops the list of frequently asked questions.

The short answer it that a severe market downturn appears highly unlikely. There’s too much demand for homes right now, and not enough supply. This imbalance will likely shield the market from price erosion in 2021, as it has done over the past ten months.

Will the U.S. Housing Market Crash in 2021?

It’s easy to understand why people would fear such an event. After all, 2020 has been a year filled with uncertainties. We’ve seen a global pandemic, an economic recession, and an unprecedented level of protest. It’s one for the history books.

But does all of this mean that the U.S. housing market will crash in 2021, as it did back in 2008?

While no one can predict future real estate or economic trends with complete certainty, we can say this. At present, it seems highly unlikely that the housing market will experience a major downturn or “crash” in 2021.

There are several reasons for this generally positive outlook. Let’s start by looking back at how the real estate market has performed over the past nine months, since COVID-19 took root in the U.S.

The chart below, created by the research team at Zillow, shows their estimate of the U.S. median home value going back a decade or so. If you look to the right side of this chart, you’ll see how prices have continued to climb nationwide throughout 2020. They continued rising despite an ongoing health crisis and economic recession.

Zillow price chart October

In other words, the coronavirus pandemic has had little to no effect on home prices — thus far, anyway. Instead of crashing, the U.S. housing market has shown surprising strength and resilience this year. And we expect this to carry into 2021 as well.

Four Factors That Are Shielding the Market

Many are wondering: Will the U.S. housing market crash in 2021?

But the real question is, why hasn’t it tanked in 2020? After all, we’ve seen a surge in job losses resulting from a raging pandemic. We’ve seen businesses collapse and stimulus checks go out. So how is the market hanging on at a time like this?

There are many overlapping reasons why the real estate market didn’t crash this year and probably won’t in 2021. Below, we’ve boiled it down to the four biggest factors.

  1. Strong demand. The U.S. housing market was on strong and stable footing going into the current pandemic situation. Sure, it slowed to a crawl back in April, as the seriousness of the coronavirus pandemic set in. But there was still a lot of “pent-up demand,” as economists call it. Now, we are seeing that demand unfold in the form of steady home sales nationwide.
  2. Low rates. Two weeks ago, the average rate for a 30-year fixed mortgage loan dropped to an incredibly low 2.8%. That was a record low at the time, the lowest average rate in 50 years of record keeping. And rates are expected to remain low well into 2021. These trends have motivated home buyers, boosting demand and prices alike.
  3. Low supply. During the last housing market crash, many cities in the U.S. had a glut of homes on the market. Driven by speculation and a nationwide real estate boom, builders were cranking out homes at a frenzied pace. In 2021, home buyers will encounter the opposite — a shortage of properties. There simply aren’t enough homes on the market to meet demand, and that puts upward pressure on prices.
  4. Qualified buyers. Many Americans lost jobs during the pandemic, an unfortunate trend no matter how you look at it. But those losses haven’t affected the U.S. real estate market very much. Many of the people who lost jobs in 2020 were working in the hospitality and services industry, typically at the lower end of the wage spectrum. They were predominantly renters — not home buyers. At present, there are still plenty of well-qualified home buyers in the market.

A Cooling Trend as Home Prices ‘Moderate’

For these and other reasons, the U.S. housing market probably won’t crash in 2021. The more likely scenario is that the overheated home-price growth we’ve seen over the past six months or so will begin to slow down in 2021.

In a quarterly forecast issued in October, the economic research team at Freddie Mac wrote the following:

“We forecast house prices to increase by 2.4% quarter over quarter in Q3 2020, and 5.5% over the calendar year. Next year look for house price growth to moderate to 2.6%.”

Similarly, a recent news release from Realtor.com stated:

“Despite the continued trend of record low inventory and unheard of price gains, the long overdue seasonal slowdown may be finally taking hold…”

A general cooling trend for home prices seems possible, as we finish out this year and move into 2021. But a housing market crash — not so much.

Disclaimer: This story includes a general outlook for the U.S. real estate market and broader economy. Forecasts and other forward-looking statements are the equivalent of an educated guess and should be treated as such. The Home Buying Institute makes no claims or assertions about future housing trends.