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Home Sales Are Up Big in 2020: Experts Discuss Whether 2021 Could Be Even Better

By Jason Hall - Jan 27, 2021 at 5:55AM

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The last time home sales were this high, they fell for the next two years. What should investors expect?

2020 was a huge year for home sales. Even with the big decline in the early weeks of the coronavirus pandemic, activity surged for the rest of the year, and by year-end, more homes were sold in the U.S. than in any other year since 2006. But will the good numbers continue? That's an important question because it has big implications for the economy, and for a number of businesses that do well when people are buying homes. And that's important for investors to understand. 

On the Nov. 6 edition of "The Wrap" on Motley Fool Live, host Jason Hall asked real estate expert and Motley Fool/Millionacres contributor Tyler Crowe and Millionacres editor Deidre Woollard whether 2021 can be even better than last year for home sales. 

Transcript: 

Jason Hall: Home sales are up huge this year, we're like all-time high levels we've seen double digit increases, not just in existing homes but in new homes. When you hear some of these order growth numbers, when we get into the homebuilders, it's just -- I've never seen levels like this before. Demand is incredibly high, interest rates are at all-time lows. Builders are struggling to keep up with demand. Here's my question. I'm going to put Tyler Crowe on the spot, I'm going ask you first. Will people buy more homes in 2021 than they buy in 2020?

Tyler Crowe: No. But it's still going to be very strong in 2021.

Jason Hall: I think that's a key thing, right? It's going to be super duper strong.

Tyler Crowe: It's to have a bad or have a down year compared to this one, would still be a very good year. It balances that out, right?

Jason Hall: That's the key. This is a cyclical industry. There's a secular story, but it's still a cyclical industry, so that's important. What do you think, Deidre?

Deidre Woollard: I think it's going to be the inverse of this year. This year, first half of the year, everything was down, but then the second half of the year, boom. Next year, I think you're going to see the opposite. First half of the year, very strong, the second half of the year, maybe not as strong.

Jason Hall: I'm a little bit mixed. I really, really am. Again, it's a normal healthy part of the housing market for it to take breathers, for it to be strong and then back-off and then be strong and back-off.

What I'm curious to see in the first half of the year, so you think about and you'll hear it again when we get into Meritage Homes and LGI Homes and NVR's numbers. They have massive backorders of people that have ordered homes that are going to get delivered over the next six months. There's a lot of that that's already built in, and especially in the first quarter.

I just don't know. I don't know if the second quarter is really going to continue to be that strong or if we start seeing so much price action because the demand has been strong, that it doesn't whipsaw the demand a little bit and make a lot of people step back from actively buying. We'll see, it'll be interesting to see what happens. That's for sure.

Tyler Crowe: One of the big things that tends to spur people into a home purchase at the time can be mortgage rates. We've seen mortgage rates fall, which has helped to grease the skids for a lot of home purchases. But one thing, I don't know if you'll see it in 2021, but if we were to start to get fears of interest rate increases, it can also be a big spur for people, be like, "Hey, you better go make that purchase now while interest rates are still low and lock in a low mortgage."

If that were to happen in 2021, you could see an increase. But based on what we have been hearing on monetary policy and things like that, not really sure that's going to be a big catalyst.

Jason Hall: Yeah, it's true. But again, I think the big thing there, Deidre, I think you want to add something to do about, but here is the big thing there is your point. It's not rates actually going up, it's concerns that it's going to happen acting as that catalyst.

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