Buyer demand increased in 2020 as low mortgage rates made homeownership more affordable and appealing. But if you missed the boat in 2020, is 2021 a good time to buy a home? Here’s why it potentially is — and isn’t — a good idea.
The upside of buying a home in 2021
The primary benefit of buying in 2021? You’re likely to snag a low interest rate on your mortgage.
Mortgage rates were close to historic lows at the start of the year. They stayed that way for much of January and into the first part of February. During the second half of February into mid-April, however, rates climbed steadily. Rates then dropped from mid-April through the first half of June before coming back up slightly. Over the summer, rates went back and forth, and at one point they got close to 2020’s lows before creeping back up at the end of August.
While rates may continue to climb during 2021, they’re unlikely to spike in the near term. The Federal Reserve has pledged to keep interest rates low through next year, though rates may rise in 2023. The Fed doesn’t set mortgage rates, but its policies tend to influence how mortgage rates trend. If the Fed keeps interest rates low, there’s a good chance mortgage rates will stay low for at least another year, if not longer. And the lower your mortgage rate, the less you’ll pay on your home loan each month, and the less interest you’ll pay all in.
The downside of buying a home in 2021
High buyer demand has driven property prices up. There are fewer sellers, so prospective buyers need to contend with higher housing prices.
As such, if you buy a home in 2021, you’re likely to pay a premium. That high home price could negate a fair amount of your mortgage savings, even if you score a fairly competitive rate on your home loan.
In July, the median price of an existing home sold was $359,900, up 17.8% from a year prior, according to the National Association of Realtors. And since it’s a seller’s market, a lot of buyers go above the asking price just to get an offer accepted.
Another issue to consider is that housing inventory is very limited. The inventory of available homes at the end of July sat at 1.32 million, down 12% from a year prior.
At this point, it’s clear there was no summertime housing surge. Historically, spring has been a peak time to list a home. But this year’s spring housing boom didn’t happen, so we’ll need to see what unfolds in the fall.
View more information: https://www.fool.com/the-ascent/mortgages/is-2021-a-good-time-to-buy-a-home/