Buying a House in 2021: Home Prices, Housing Inventory, Mortgages, and More
Despite the pandemic’s impact on the country and the economy, one could argue that housing was never hotter than it was last year.
Homes flew off the market at a record pace, driven by a shift in what buyers want from their home. That drove prices up faster than they had climbed in more than a decade, but many buyers were undeterred by the rising prices. That’s because they could afford more house for their money due to mortgage interest rates falling to record lows more than 15 times last year.
Housing in 2020 was, in many ways, unprecedented.
And the experts are already predicting that it will be more of the same in 2021.
So, if you’re considering buying a house this year, the question becomes: how do you make sense of this unprecedented market and find the home of your dreams?
Let’s start by breaking down where things are now.
What are the current housing market conditions?
As we said earlier, housing nationwide is as hot as it’s ever been. There are many contributing factors driving this, but one of the main ones is the amount of time so many people spent in their homes last year. Couple that with the widespread embracing of working from home and people are seriously reconsidering what home means to them.
Instead of just being a place where you live, homes now are schools, offices, fitness centers, and much, much more. That’s leading to many people looking for a new home, whether it’s in their current city or town or maybe even a new one.
It’s also changing what people are looking for in the house itself, perhaps one with more room, an office, or an additional bedroom that can be turned into a home gym.
With so many people looking for a new home (or perhaps their first one), competition for the homes that come onto the market is fierce. In some of the hottest housing markets, the typical home is selling in less than a week. In fact, homes nationwide haven’t sold this fast since at least 2012.
And the competition is getting fiercer by the day as a recent report showed that the number of homes for sale in the U.S. fell to an all-time low in December.
That competition is also driving prices up faster than they’ve risen in 15 years. In many cases, homes are selling above their asking price. According to that same report, more than one-third of the homes sold in November sold above their asking price.
But, the rapid rise in prices isn’t preventing many people from buying a new home. Why is that? Low interest rates are making it easier to buy more home for your money.
Before 2020, the prevailing market interest rate for the 30-year, fixed-rate mortgage had never fallen below 3.3%. But that record fell last year and continued falling.
In fact, the prevailing market interest rate fell to new record lows 16 different times in 2020, before setting another new record as 2021 began.
Now, it’s important to know that not everyone is going to get interest rates that low. It depends on each borrower’s financial situation, their credit, down payment, and many other factors. It’s important to contact a mortgage professional to review what your mortgage rate may be if you are looking to buy.
Regardless, low interest rates are helping buyers absorb the rising cost of housing and still get the house they want. On top of that, conditions aren’t quite as rough as they seem.
You still have choices
Even though the number of homes on the market is at an all-time low, there are still plenty of homes for sale. And more are coming onto the market every day. Beyond that, inventory will likely increase during the traditionally robust spring housing market. Plus, housing observers expect interest rates to stay low for the rest of this year and beyond, which should help with affordability.
As for what buyers can do to succeed in this market, there are several things.
Tips to help you buy the house of your dreams
One of the best things a prospective buyer can do is contact a mortgage company before they start searching to get a pre-approval letter.
A pre-approval is the result of a process where a lender examines your financial situation to determine if you are a good candidate for a mortgage. The pre-approval process is a more intensive financial review than the pre-qualification process, which mainly helps you figure out how much house you can afford without the lender verifying the information you provided.
In the pre-approval process, your mortgage lender will review your credit, income, assets, and debt to determine whether you are financially ready for a mortgage. Receiving a pre-approval typically implies that your mortgage lender is willing to lend you the money for your mortgage.
It also shows sellers that you are financially serious about buying a home. That’s especially important now as you may end up in a competition for your dream home.
Sellers typically prefer to work with pre-approved buyers because their credit and income qualifies them to obtain home financing. This will give your offer on a home an advantage over other buyers. A seller doesn’t want to see a deal fall through at the last minute because a buyer was not approved for a mortgage.
Additionally, to a real estate agent, a pre-approval demonstrates that a borrower is well-qualified and serious about buying a home. For real estate agents, the more likely it is that they will close a deal (therefore earning a commission), the harder they will work on your behalf.
Each lender’s pre-approval process is different, but at New American Funding, we’ve worked hard to develop an efficient pre-approval process, reducing the time it takes to process your loan when you're ready to buy.
To get pre-approved, a lender will review your credit report and may ask you for the following:
- Copies of last year’s W-2s
- Current pay stubs
- Brokerage and other savings account statements
- Your monthly expenses
- A current mortgage statement and homeowner’s policy (if applicable), and more.
If you are looking to buy a home, it’s a good idea to collect all of these documents and information so you can provide it when necessary.
If you are pre-approved, you will receive a letter to share with real estate agents and sellers.
All in all, having a pre-approval gives you a better chance to buy the home you want.
And in this market, that’s a very important thing.
Beyond that, be smart, be patient, but be ready to pounce if you find the right house for you. It’s out there somewhere.
If you’re ready to start the pre-approval process and get yourself ready to buy a home, contact one of New American Funding’s Loan Officers today to get started.