Talk of a housing bubble is beginning to crop up as home prices have appreciated at a rapid pace this year. This is understandable, since appreciation of residential real estate is well above historic annual averages. According to the Federal Housing Finance Agency (FHFA), annual appreciation since 1991 has averaged 3.8%. Here are the latest 2020 appreciation numbers from three reliable sources:
It’s easy to jump to the conclusion that house appreciation is out of control in today’s market. However, we need to put these numbers into context first.
Following the housing crash, home values depreciated dramatically from 2007-2011. Values are still recovering from that unusually long period of falling prices. We must also realize that normal inflation has had an impact.
The pandemic caused many households to reconsider whether their current home still fulfills their lifestyle, so record numbers of buyers have been flooding the housing market this year. At the same time, concerns about the pandemic have caused many homeowners to put their plans to sell on hold.
More people buying and fewer people selling has caused home prices to escalate. However, with a vaccine on the horizon, more homeowners will be putting their houses on the market. This will better balance supply with demand and slow down the rapid appreciation. That’s why major organizations in the housing industry are calling for much more moderate home appreciation next year. Here are the most recent forecasts for 2021:
>>National Association of Realtors: 4.5%
>>Freddie Mac: 2.6%
>>Fannie Mae: 2.1%
>>Mortgage Bankers Association: 2%
Most aspects of life have been anything but normal in 2020. That includes buying and selling real estate. High demand coupled with restricted supply has caused home prices to appreciate above historic levels. With the end of the health crisis in sight, we will see price appreciation return to more normal levels next year.
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