As the COVID-19 rollout is accelerated, we can expect the return to normalcy to also pick up steam – in business, social situations, school, travel, etc. Life will never be the same post-COVID, but what can we expect to see in the crucial areas of our lives including housing, investments, employment, travel, etc. for 2021? What will be returning, ongoing,and emerging trends?
After a year of lockdowns and social distancing, Americans are eager to let loose. Pent up demand for travel, entertainment, shopping, and even going to school and workplaces will all be driving factors in 2021.
Here is what the experts are forecasting.
Economy and Employment
According to the CBO, all things being equal and with the easing of social distancing restrictions due to the rollout of the vaccine, GDP is expected to expand along with employment. GDP is projected to return to its pre-pandemic level as early as mid-2021. As the economy expands, many people will rejoin the labor force, returning to pre-pandemic employment levels in 2022. Unemployment is expected to gradually decline through 2026 according to the CBO.
Housing and Commercial Real Estate
According to realtor.com, here is the forecast for the major housing indicators for 2021:
Housing Indicator | Realtor.com 2021 Forecast
Mortgage Rates Average 3.2% throughout the year, 3.4% by end of year
Existing Home Median Sales
Price Appreciation Up 5.7%
Existing Home Sales Up 7.0%
Housing Starts Up 9%
Homeownership Rate 65.9%
Realtor.com forecasts a continuing housing boom from 2020 to 2021 but cautioned that “as rising home prices require larger upfront down payments as well as a bigger ongoing monthly payment due to the end of mortgage rate declines” affordability can be an issue as temporary income losses from the pandemic “could prove to be particularly disruptive to younger generations’ plans for homeownership, as these were the groups expected to face income disruptions that might require dipping into savings which would otherwise be used for a down payment.”
Commercial Real Estate
CBRE expects that 2021 will see a strengthened recovery of all U.S. commercial real estate sectors as the broader economy bounces back. Some sectors will be quicker to recover than others. CBRE anticipates that sectors like office, retail, and hotels will begin a slow recovery while industrial & logistics real estate and data centers will extend their rapid early recovery that is already underway, and multifamily will start its swift rebound.
The ultra-wealthy and institutional investors who were hoarding cash in 2020 are set to unleash that cash on the commercial real estate market in 2021. Investors have about $300 billion earmarked for real estate investment, much of it in North America. Investors will be particularly active in the multifamily space where investment volume is projected to rise 33 percent in 2021 to $148 billion. Suburban multifamily will outpace urban properties in the recovery. CBRE foresees U.S. multifamily returning to pre-pandemic occupancy levels in 2021 with rents fully recovering by 2022.
There will be increasing interest in the affordable housing segment due to the lagging supply. In the affordable housing segment, Freddi Mac projects the supply of affordable housing will become more constrained due to an increasing number of multifamily units no longer being affordable for low- and very low-income households.
According to travel marketing firm MMGY Global and based on a survey of potential travelers, there is tremendous pent-up demand for travel and with the ongoing rollout of vaccines, this pent-up demand will translate to a very active travel market – domestic and international. Air travel and hospitality will directly benefit from this rollout.
MMGY predicts that even as other forms of travel take off, road trips will continue to rule in 2021 – continuing the trend from 2020. The combination of the ease and safety of car travel and the ability to socially distance outdoors is why road trips will continue to be popular.
Investors are expected to move more and more away from the 60/40 portfolio (60% equity/40% bonds) towards alternative investments as sophisticated investors sour on the volatility and manipulation on Wall Street. The traditional 60/40 portfolio no longer works. Equity markets are at historically overvalued levels and increasingly more volatile with large sudden swings due to the influx of day traders spurred by free trading platform Robinhood. On the bond side, the 10-year treasury rate is at, or near, its lowest rate – negating any hedging benefits to counter equity declines.
This is why alternative investments (such as mobile home parks) are becoming more attractive – really, because they offer returns typically uncorrelated to equities and bonds and can help mitigate risk in portfolios. The last decade has seen a steep rise in interest in the private market offerings such as private debt and equity, which may offer attractive returns in excess of public markets, due to their ability to provide excess returns from the limited liquidity they offer. Interest in the private markets has been intensifying to the point that in 2019, private offerings SURPASSED registered offerings in the amount of capital invested by the investing public.
My takeaways from the 2021 forecasts are optimism and opportunities. The rebound in the economy and the re-opening of businesses, schools, travel, and entertainment present opportunities for investment in a variety of asset classes and sectors.