The 2020 housing market has been booming. According to Realtor.com the median price of a home in the U.S. is now $348,000, up 13% from this time last year. This sharp increase in price has been driven by several factors.
Many homeowners have put off selling their house, not wanting to have people coming into their house and going through a moving process during the coronavirus epidemic. This has left a dearth of inventory. In November there were 761,280 active listings, 39% less than the year prior.
The other side of the supply/demand equation has also been affected. Demand has increased because there has been an exodus from cities to suburbs. Driving this migration have been two factors. Cities have been pandemic hot spots with higher rates of infections and death. People are moving to get away from heavily populated areas, where separation is hard, and moving to the suburbs. For example, according to Douglas Elliman, in July, Manhattan N.Y. had property listings up 47% vs year prior while sales in the nearby suburbs increased 44% according to Miller Samuel Real Estate Appraisers and Consultants. In addition, the work from home movement has impacted housing demand. Many that are now going to be working from home well into the future are moving away from high cost living areas and opting for more space and a better quality of life over proximity to work. The additional space has become a driving factor in itself as those working from home are spending more time in their home.
Will this change in 2021? It’s likely that home prices will continue their upward climb in 2021, though it looks like it may be at a slower pace than in 2020. The Mortgage Bankers Association (MBA) projects a 2.4% jump in home prices, while Freddie Mac expects an increase of 2.6%.
Offsetting these increases in housing prices has been the drop-in interest rates to 2.9% on the 30-year fixed rate mortgage, down from 4.7% in January. The lower rates have made higher priced homes more affordable and have also driven demand. In 2021 the MBA is forecasting rates to rise slightly, to 3.3% on the 30 year fixed rate mortgage. This still keeps rates near historic lows for 2021, making it an attractive time to buy a house.
While increased inventory and low interest rates sound appealing, whether 2021 is a good time to buy a home ultimately depends on your financial situation. To get prepared to a 2021 purchase here are a few steps to consider:
Assess your job security. Recent economic changes have injected doubt into many aspects of day to day living, including employment. Buying a home isn’t a good idea if there are doubts on the job front.
Start trying to clear a debt that you have. When taking out a mortgage factors like debt to income ratios are considered. Typically, you want your debt to income ratio to be below 50%, but specific requirements depend on the type of loan you are getting. Getting you debt as low as possible should be the goal.
Get a pre-approval for a mortgage. Demand for homes is expected to stay strong. This means you may be bidding against others to get the home you want. While price is a primary driver to getting an accepted offer, your ability to close is another consideration. Getting a pre-approval shows sellers that you are in ready to close.
Overall, 2021 looks like it will be a good time to buy a home. Pricing will stabilize and a growing inventory will offer buyers a larger choice and, perhaps, not as much pressure to rush. If you have ever wanted to buy in a city the recent fall in pricing in some urban areas might offer a buying opportunity. Start doing your research or contact a local real estate agent for information.
If you want to get prepared, feel free to talk to one of our loan agents and get pre-approved. We are here to help. www.emmloans.com