A strong housing market is a good indicator of the sales performance for the home improvement industry. It’s no secret that sales at The Home Depot, Lowe’s, and many Independent retailers went through the roof in 2020. However, will the housing trend continue in 2021? If industry experts and housing analysts are correct, the answer is a resounding yes.
Few would deny that 2020 was a complicated year for the housing market. Due to the pandemic, people stayed in place, and there were fewer homes on the market. Additionally, mortgage rates were low. This seller’s market significantly increased home values and created wealth for those homeowners who decided to maintain their existing residences. The limited supply of houses caused prices to skyrocket. However, higher wage earners and first-time homebuyers, many of whom were millennials, were able to buy and drive the demand for housing.
Housing Shortage Improves
Things are expected to improve in terms of the supply of available housing. Lumber mills are beginning to operate at capacity after experiencing shortages due to shut-downs related to the pandemic. Additionally, the tariff on imported Canadian lumber has been reduced from over 20 percent to 9 percent. These changes will improve the housing problems related to inventory. However, more housing in the marketplace will not translate into lower prices.
Lending Tree, an online lending marketplace, in the report, “What to Expect in the Housing Market in 2021, forecasts housing starts will rise 15-20 percent by the end of the year. According to Tendayi Kapfidze, VP and Chief Economist, “Lack of supply was a major contributor to higher home prices in 2020. As construction work bounces back in 2021, the supply of new homes should increase as more homes are built. However, most new supply will be at higher price points, which builders find more profitable.”
New Government Housing Incentives
The Biden administration is proposing several new incentives designed tomake buying a home more affordable. These include a $15,000 tax credit to assist with down payments and forgiving student loan debt. While these incentives may increase home sales, unknown factors such as mortgage rates, loss of high-income jobs, and slow economic recovery are disruptions that could prevent buyers from purchasing homes.
“The consequent rise in home prices have boosted wealth accumulation for homeowners,” says
Lawrence Yun, National Association of Realtors Chief Economist. “But the opposite side of this will mean the continued decline of housing affordability and will limit future homeownership opportunities for young adults if the housing supply is not greatly increased.”
Working from Home
With more people working remotely, it’s easier to relocate. While housing in urban areas remains in demand, there has been an upsurge in home purchases in suburban and rural locations. Analysts have identified this desire to relocate from cities as a primary reason for the surge in home improvement sales. The pandemic limited access to restaurants, theatres, and vacations and kept many people home for work and recreation. Working from home became the norm, rather than the exception. Many people felt confined and decided to move because they needed more space.
Relocation to Suburban and Rural Areas
People who purchased older homes were frequent visitors to home improvement stores. In 2020, Wells Fargo analysts surveyed 1,000 consumers. Almost 14 percent of respondents planned to relocate because of COVID-19. And, over 50 percent expect to work from home in 2021. Both reasons would motivate homeowners to purchase home improvement products to make their homes more comfortable for their new living situations. According to the survey, even small moves had a significant impact on home improvement spending. Zachary Fadem, a senior equity analyst, says a 1 percent shift can increase sales in the home improvement category by $2 billion.
Analyst Predicts Biggest Sales Since the ’80s
Zillow, the leading online real estate marketplace, forecasts housing sales will grow 21.9 percent this year, totaling almost 6.9 million homes. Unlike some analysts who believe many are tired of city living, Zillow predicts a resurgence in 2021 because amenities that initially attracted people to cities will begin to open up. They also believe the COVID-19 vaccines will help people be less concerned about contracting the virus because of living in high-density cities. While analysts have differing opinions on the factors shaping today’s housing market, most expect sales in 2021 to be even stronger than 2020—an exceptional year for the industry.