Our survey respondents largely think the trend will continue, predicting around 1.4 million starts for 2021. That's down slightly from today's numbers but on par with other industry projections. Both the Mortgage Bankers Association and Fannie Mae also predict 1.4 million starts for the bulk of next year.
On the back of surging homebuyer demand and the lowest inventory levels on record, home prices skyrocketed in 2020. According to the Federal Housing Finance Agency, home prices rose 7.8% in the third quarter alone.
We asked our respondents if an end was in sight, and nearly 40% said definitely not. Of the few that were optimistic, the majority said they don't expect relief until later in the year.
Investors say big cities will continue to struggle in 2021
Urban areas saw big population losses in 2020. In efforts to socially distance -- not to mention spread out while stuck at home -- millions of urbanites packed up and left, leaving many major cities with rising vacancy rates, plummeting rents, and ever-struggling economies.
Though vaccines offer some hope for these troubled towns, it doesn't seem like there's much optimism that rents can bounce back. In fact, our Paydirt readers overwhelmingly believe they won't. A whopping 72.9% said big-city rents will not come back to pre-pandemic levels in 2021.
One of our respondents predicted "[c]ontinued new homebuilding in suburbs and smaller cities as there continues to be an exodus out of congested cities. Also, continued out-migration from California to other less populated and less expensive western states."
Our expert's take on big cities: reform may help high-density development
Lena Katz predicted that clashes over higher-density multifamily development, particularly low- and medium-income, would intensify in 2020.
"I hoped that social responsibility would prevail," she says. "It feels like the entire nationwide argument has been sidelined by COVID-19," though Katz believes the need for housing reform has intensified.
She points out that the need to house traveling healthcare workers, the spike in Americans who can't keep up with mortgage payments, and the fact that "the pandemic threw social safety net issues into stark relief" has highlighted the need for socially responsible development.
"Of course, this could also have to do with the downward spiral in demand for luxury condos in urban core areas. Developers are looking for other products that may have more appeal."
The COVID-19 pandemic, says Katz, has changed the desire for high-density development.
"[P]eople are afraid of living in population density these days -- are fleeing it, in fact. Many people with privilege are moving to the suburbs or rural regions. And ambitious projects that were approved in the past two years have seen construction stalled due to lack of resources."
"Basically, issues of housing inventory supply and demand have been turned inside out and shaken all around by the pandemic, but the need for housing reform remains."
Katz predicts that we'll see some movement on housing reform in 2021, as both Democrats and Republicans have expressed interest in curbing 2020's alarming housing trends.
Investors are not concerned about rising property taxes in 2021
Our own Maurie Backman predicts homeowners could see a rise in property taxes this year, largely due to declining business revenues and struggling municipalities.
But our survey respondents? They're not too worried. When asked about a tax hike, our respondents averaged "slightly concerned."
The response is surprising, particularly considering those home price predictions noted above. As we all know, when home values rise, so do tax bills -- and values will likely rise considerably as we get further into 2021.
Investors are not sure about opportunity zone investing in 2021
Only 16% of our respondents said they're definitely planning some opportunity zone investing this year, while over 40% say they're open to it.
With many investors still not sure if opportunity zones are for them, savvy investors who understand the risks may want to look into high-growth opportunity zones for investments in 2021.
Our expert's take on opportunity zones: 2021 could be a great year to invest
"Well, that aged like hot mayonnaise," says Tyler Crowe. Doesn't that just sum up 2020?
"December 31, 2019, was a pivotal date for opportunity zone investing. It was the last time someone could invest in a qualified opportunity zone and receive the maximum tax benefit. Unsurprisingly, there was a mad dash to invest in opportunity zone-eligible deals and opportunity zone funds at the end of last year."
"According to consulting firm Novogradac, more money was put into qualified opportunity zone funds in the last three months of 2019 than what had previously been put into the entire program," explains Crowe.
"Because of this, I thought that 2020 would be a down year for opportunity zone investment. The extra tax benefit of getting in before the end of 2019 would push people to invest, and then opportunity zone funds wouldn't raise nearly as much."
That entire prediction got smashed by the coronavirus pandemic.
"After the stock market crashed in March," says Crowe, "investors started flocking toward opportunity zone funds. In September, Novogradac reported that funds going into opportunity zones have nearly doubled since January."
Crowe points out two things that made opportunity zones more appealing post-outbreak:
- Holding periods of at least 10 years would be more than enough to ride out any market volatility along the way.
- Lower rates of return on all investments in a coronavirus world made the slightly lower rates typically offered in opportunity zones more appealing.
Crowe isn't sure if this trend will hold in 2021. A recovering CRE market may make opportunity zones less appealing, and tax benefits decrease each year.
"At the same time, there are still monumental tax benefits for real estate investors in qualified opportunity zones, but investors should still look for quality deals with proven developers rather than chase a risky bet simply for the tax advantages.
Our experts say evictions and housing reform will be big in 2021
Aly Yale predicted last year that we'd see widespread rent control efforts in 2020. "Fortunately for investors," she says, "that didn't quite come to fruition. While some individual cities took aim at rising rents (hello, Portland, Maine), we saw little movement [at the state level]."
Yale points out that both California and Sacramento voters struck down rent control bills despite having some of the highest rents in the country.
But that doesn't mean that rental investors aren't facing problems.
"COVID-19 hit renters hard, and with eviction moratoriums across the country, many landlords were (and still are) left high and dry on rent."