2020 Economic Review & 2021 Forecast in the U.S. & Pierce County
At the beginning of each year, we invite REALTOR® Michael Robinson to present an economic review of the past year and share what is forecasted by economists for the year ahead. While Michael is not an economist, he brings his own expertise to expound upon resources provided by Dr. Neal Johnson (Sound Resources Economics & Tacoma Pierce County Chamber) and Matthew Gardner (Windermere Chief Economist).
In this overview, we’re sharing a few key takeaways from Michael’s presentation. First, we’ll start by looking at what is happening on a national level:
U.S. Economy & Housing
It is no secret that in 2020, COVID-19 hit the U.S. economy like a ton of bricks. Here are a few simple answers to questions we’ve been been asked a lot lately:
What is unemployment like in the U.S. right now?
As we recovered from the Great Recession from 2010 to 2019, over 22 million new jobs were added in the U.S. during this time. Then suddenly over a period of about 45 days beginning in April 2020, the U.S. lost 21 million jobs due to the impact of COVID-19.
The good news is that recovery is underway, but the rate of recovery is not the same for everyone and this is largely dependent on industry.
Before the pandemic, unemployment in the U.S. was at 3.5%. By the end of 2021, experts expect unemployment will be at 5.6%. While 2021 won’t quite put us back at pre-pandemic employment rates, we are on a steady path to recovery.
What will interest rates do in 2021?
Mortgage rates have already bottomed out, but if you’re planning to buy a home in 2021, don’t worry—in 2021, mortgage interest rates will rise, but it won’t be significant.
Windermere’s Economist Matthew Gardner estimates that conventional 30-year fixed mortgage rates will be at 3.06% by the end of 2021. This is right in line with other economists' predictions.
Is there a foreclosure crisis?
We’ve heard a lot of rumors about there being a looming foreclosure crisis, and this is not the case. At the beginning of the pandemic, the number of homes in forbearance was significant, and now, only 5.2% of homes are in forbearance. (For some context, in 2009, 14.4% of all mortgages in the U.S. were in foreclosure.) Forbearance is NOT foreclosure; there is a big difference.
Forbearance is when your lender allows you to temporarily pause paying your mortgage or pay it at a lower rate (and you will of course have to make up the difference later).
Foreclosure is when a borrower does not pay their mortgage and the lender must repossess the home.
As jobs start to come back, more and more people will be able to pay their mortgages again. We do expect to see foreclosures to rise in 2021, but it won’t be disruptive.
Are we in a housing bubble?
Another rumor we’ve heard a lot lately is that we are in a housing bubble, and this is not true. There is so much pressure and demand on the market right now—high demand for homes and a low supply is resulting in price appreciation. Many people are saying that because housing prices are going up so fast there must be a bubble, but just because there is not enough supply does not mean there is a bubble.
There are much more responsible lending standards today, and it’s not easy to get a mortgage; you need to have a high credit score.
What are current housing trends in the U.S.?
In 2021, we will see even more home sales occur. Millennials are driving demand, and their generation is even larger than the Baby Boomer generation. First-time homebuyers (who are mostly Millennials) are going to continue buying more homes than any other cohort, and this isn’t going to change anytime soon.
There is also (unsurprisingly) a trend of people moving away from urban settings to live in areas with more space, and remote work is driving this.
Pierce County Economy & Housing
As we zoom in on Pierce County’s economy and our real estate market, you’ll see that what’s happening on a national level is largely reflected in our market.
Here are a few key takeaways to know about this year:
How is Pierce County’s economy doing during COVID-19?
The Pierce County Economic Index gives us some insight into what is happening in our local economy. This chart represents a number of different factors, including per capita income, total personal income, permit values, construction, port activity, and more. It’s essentially an index of indexes, and here you’ll see that 2021 will be the 11th year of straight growth in Pierce County’s economy:
How is employment in Pierce County?
Unemployment in Pierce County follows a very similar pattern as the rest of the nation's unemployment; at the end of 2020, Pierce County had an 8% unemployment rate. We’re in decent shape, but not quite where we used to be.
In 2020, Pierce County added 14,300 workers to the labor force, and in 2021 we are expected to have 12,400 new jobs in Pierce County. (For context, Pierce County currently has a population of 927,900.)
How active is Pierce County’s real estate market?
The Pierce County Housing Activity Index has nothing to do with price; it is all about closed sales activity. As you can see there has been some minor fluctuation in the past year, but these numbers are expected to grow again in 2021. The bottleneck here is supply—we have a low supply of homes and high demand for homes.
On that note, you’ll see in the Pierce County Velocity of Sales chart below how many home sales there were in Pierce County by year. The difference in recent years has been small.
Is Pierce County still affordable?
This question has many different answers, but according to the Pierce County Housing Affordability Index, affordability is increasing despite our rising median home sale price.
The Pierce County Housing Affordability Index compares what a median income family could afford to the average values of houses and condos. With an index value of 100, a family could put 20% down on a home and direct 30% of their income to a 30-year mortgage.
Even though home prices went up in 2020, interest rates were so low that in many cases they offset the increase in home price. Overall, affordability improved in Pierce County.
How do home prices in Pierce County compare to King County?
At the end of 2020, the median price in King County was at $644,950 compared to $435,000 in Pierce County. The average Pierce County home is 36% less expensive than the average King County Home.
In 2020, Pierce County’s median home price went up 16.5% while King County’s went up by 10%. Keep in mind that King County has a sizable share of the market that is urban condos, and these are not in demand right now as a result of COVID-19 trends.
On another note, 2020’s home sales over $1 million went up in 55% in Pierce County.
The gap between King County and Pierce County will continue to provide business opportunities here in Pierce County.
Is Pierce County a good place to buy an investment property?
In 2020, the rent in Pierce County went up by 5%, bringing the average payment to $1,402. A careful investment can still create good cash flow.
Do you have a question about buying or selling a home in Pierce County? We’re ready to connect you with a local real estate expert who can guide you each step of the way. Get in touch here and we will respond ASAP!