The pandemic has created a perfect storm of factors driving today’s historic housing market. Low mortgage rates, increased time spent at home during pandemic lockdowns, more location flexibility for people working remotely — all of these factors have created an influx of buyers entering the housing market looking for a new home.
If you’re looking to buy, you might see the current market as a blessing or a curse depending on your desired location and financial situation. Either way, there are some important things to keep in mind as you start the process.
- It’s a seller’s market thanks to low inventory and high buyer demand; to be competitive, buyers should be sure to get pre-approved for a mortgage and be informed about what they can afford before they begin looking at potential homes.
- Interest rates are at historic lows, a helpful factor in balancing out higher down payments thanks to increasing home prices. Buyers need to know their credit score and debt-to-income ratio (and improve it if needed) in order to qualify for the best rates available.
- Solutions like virtual home tours and closings were implemented during periods of social distancing and will probably stick around for the long term, making it easier for buyers to see homes before they tour them in person or even buy a home sight unseen.
- No matter how you view the current housing market, it’s important not to let market conditions dictate your decision to buy. A good real estate agent and lender will help you find a home and mortgage that works for you regardless of external market factors.
Navigating a Seller’s Market
The number of buyers looking for a home right now significantly outnumbers the inventory on the market. As a result, homes are selling in record times even as home prices rise.
According to Zillow, more than half of homes on the market are selling in under a week despite home prices sitting 10% higher than this time last year. Most homes are seeing multiple offers, and bidding wars are happening in every part of the country (see the graphic below for a picture of prices by region). Cash offers aren’t uncommon as buyers look to sneak in ahead of even the most attractive competition.
The market is competitive — there’s no denying that. But there are some steps you can take to put yourself in the best possible position as a buyer. Getting preapproved by a lender is essential so you have an accurate picture of how you’ll be able to manage your mortgage and what price range you can afford. It also avoids the critical mistake buyers make of falling in love with a home only to find out from the bank it’s not in their window of affordability.
Be sure to shop around for the lender that gives you the best offer, too. Just because a lender approves your application doesn’t mean they’re giving you the best possible deal. Reach out to multiple lenders, talk to them about the factors influencing their decision, and go with the lender that makes the most sense for you.
Interest Rates at Historic Lows
Interest rates are hovering around 3% — the lowest in decades — reaching a low point of 2.65% in early 2021. Despite a slight increase after that, the spring saw another drop and according to the Federal Reserve, we can expect them to stay low for the next few years.
This is good news for buyers looking for a good rate and affordable monthly mortgage payments, not to mention it balances out the higher down payment required by current home prices. Before applying for a loan, however, it’s important to be informed about your credit and how it will affect the rate you’re given.
The pandemic’s effect on employment has tightened the conditions many lenders are putting around loan approval. A good credit score and acceptable debt-to-income ratio are two of the biggest determining factors in a buyer’s mortgage rate. The lowest rates available will also require the highest credit scores (typically mid 700s out of 850), which is important to keep in mind if interest rate is your main motivator for looking to buy right now.
It’s important for buyers to think about their credit and debt outlook to help determine whether they’re buying because of market momentum or because it’s truly the right time for them to purchase a home. According to market experts, buyers shouldn’t rush to purchase just to get a low rate — if you aren’t ready, your individual circumstances make affordability questionable, or you’re not 100% certain about a home, it’s better to wait.
An Evolving Home-Buying Process
Social distancing measures implemented during the pandemic meant the real estate industry had to find innovative solutions to keep the market active while adhering to safety guidelines. Virtual tours and settlements became the norm, and those changes likely won’t go away with the end of the pandemic.
This new online availability of home tours means buyers can check out homes they’re interested in before they see them in person, saving time for buyers and sellers alike. In addition, those looking to buy in locations not close by to where they currently live can take virtual tours and even buy homes sight-unseen — an occurrence that became increasingly more common during the pandemic, especially in high-demand places like Florida, Texas, and the coasts.
Check out a sample 3D virtual home tour from Zillow.
Buying a House in 2021: Blessing or Curse?
It really depends on your situation and your perspective. If you’re someone who was planning to buy at this time even before the onset of the pandemic or you have very specific home or location needs, you might feel frustrated by the market’s current low inventory and competitive landscape. If you have more flexibility in these areas, you might see the low-interest rates as a welcome opportunity you’re glad to capitalize on.
Either way, it’s important to remember that market conditions should never fully dictate your decision to purchase a home. Personal readiness is always most important, and good real estate agents and lenders will help you find a home and a mortgage that works for you regardless of external factors.
Are you thinking about buying in 2021? Contact Oberer Homes so we can find the perfect property for you to call home.
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