Market Report: Why Buyers Should Just Dive In
With the way things are forecast to go in the housing market in 2021, buyers might be feeling a little overwhelmed. Home sales are predicted to increase by 21.9% with home values expected to rise 10.5% by December 2021, according to a recent Zillow report.
However, while some buyers may think it wise to wait for the market to cool, Zillow’s data shows they may benefit more from simply diving in—of course, if they are financially prepared to do so—as the possibility of rising mortgage rates could bring affordability challenges in the future. Additionally, if the persistent inventory shortage keeps up, this will continue pushing home prices even higher. And with moving trends’ seismic shift due to the ongoing coronavirus pandemic, areas that were once affordable are seeing increased activity and increased home values.
An example, Zillow reports that today’s average mortgage rate is 2.68% for a 30-year fixed loan. With a 20% down payment, that means it would cost a typical U.S. buyer about $861 per month, plus taxes and insurance, to purchase a home. However, if home values rise 8% and interest rates climb to 3%, that same house would cost buyers $969 per month. And with a 12% spike in home values, the scenario would be monthly payments of $1,005.
“The best time to buy a home should always be when it’s the right time for your family. However, home shoppers would be wise to gather as much information as possible and use it to make smart decisions that maximize their buying power,” said Zillow home trends expert Amanda Pendleton. “For someone ready to buy, jumping in sooner rather than later could mean a savings of hundreds of dollars a month. Or, more likely, it could mean having to make fewer tradeoffs to stay within budget.”
The same goes for refinancing, said Zillow. Right now, those refinancing on a typical U.S. home loan would pay $861 per month, but if rates increase 3%, that would tack on $36 per month. And if rates increased to 3.5%, monthly payments would rise to $956.
“Rates are near historic lows, and we expect rates to hover near current levels through the first quarter of 2021. Although we expect rates to slightly increase as the economy recovers from COVID-19, it remains to be seen when that recovery truly gains traction. While these rate fluctuations may seem like small changes, when homeowners do the math, it is clear how lower rates can significantly reduce monthly payments for the life of the mortgage,” said Zillow Senior Economist Chris Glynn. “Like with any consumer decision, it is important to be informed, research the market and shop around to find the best deal possible. Qualified mortgage professionals can help individual consumers identify the loan rate, repayment term and structure that meet their needs.”
Plenty of Home Buyers Will Enter the Market
Not Enough Homes Will Be Listed for Sale
What Does This Mean for Home Buyers in 2021?
Okay, so far it looks like you’ll need to bring your A game if you want to buy the home of your dreams this year. With more buyers than sellers, you’ll probably be up against some heavy competition. But don’t worry—there’s a bright side for buyers too.
If you’re getting a mortgage, you might still be able to get a low interest rate in 2021. The annual average interest rate for a 15-year fixed-rate mortgage in 2020 was only 2.61%—the lowest it’s been since Freddie Mac started reporting nearly 30 years ago!
Sure, rates might start to increase a little in 2021. But you’ll probably still have a good chance of locking in a lower than average one. A low rate means a lower monthly payment and less of your money going toward interest over the life of the loan. Woo-hoo!
What Does This Mean for Home Sellers in 2021?
Sellers out there can feel pretty good about 2021. There are still plenty of buyers in the market and not as many sellers to compete with you. If you work with an experienced agent, you’ll be able to set the best home price and find the right buyer. You should have no problem selling your house this year.