Buying a home can be challenging at the best of times, but the current economic climate and an uncertain future complicate matters even more. So far, the housing market has shown signs of recovery in some parts of the U.S., yet not all homebuyers are ready to take the leap. If you’re thinking about holding off until 2021 to buy a house, here’s what you should know.
House Prices Could Rise in 2021
Housing prices were predicted to drop given the economic difficulties caused by the COVID-19 pandemic. Yet so far, they seem to be on the rise, and new predictions for the 2021 real estate market continue that upward trend. Both Freddie Mac and Fannie Mae forecast further growth in median home prices for both new and existing homes, with figures significantly topping those from 2019.
As a homebuyer, you might be tempted to wait until 2021 to buy a new house, hoping that a drop in prices will work in your favor. So far, market forecasts are pointing in the opposite direction. If you find a property you like at a good price, you might be better off buying it now instead of waiting for something better to come along.
Mortgage and Interest Rates Could Also Rise
Lenders are currently offering the lowest interest rates, historically speaking, which is great news for anyone who has a loan. In fact, you might be among those thinking about how to take advantage of the low rates by refinancing your mortgage. These low rates are predicted to stay low throughout 2021, backed by the Federal Reserve’s commitment to keep them that way until improvements in employment and inflation allow for an increase. Yet this is not a guarantee.
Forecasts indicate that interest rates should reach 0.25% by the end of the year and throughout 2021. In the case of Freddie Mac’s October forecast, mortgage rates are also set to remain unchanged at 3%. However, it has also been projected that interest rates could start rising again as early as the middle of next year, and will surely develop an upward trend by 2022.
The truth is that no amount of charts and projections can paint an exact picture of what the future holds. Even if mortgage and interest rates stay the same in 2021, they are bound to start rising eventually. So if your decision to buy a home hinges heavily on them, make sure to take the upcoming rise into account.
There Could Be Fewer Houses to Choose From
One of the difficulties in making predictions for the 2021 housing market is the human factor. The pandemic has had a negative impact on employment and economy, but at the same time, people are also spending less money so that they have reserves set aside for the uncertain future. Also, those who recently took advantage of the reduced interest rates are unlikely to put their homes on the market, in order to reap the benefits of refinancing. As a result, there could well be fewer houses on the market in 2021.
Another thing to bear in mind is that there has been an increase in housing demand in the second half of 2020, triggered, among other factors, by the low mortgages and interest rates. Construction of new houses has also slowed down, which means that there will be fewer new homes available.
It may be tempting to think that, due to the financial strains caused by the pandemic, there would be an increase in housing supply, particularly distressed properties. In reality, the government has put several measures in place to prevent a worst case scenario, from stimulus checks to foreclosure moratoriums. If you pair this with a boom in recent home sales, there could be slim pickings on the housing market in 2021.
Lending Standards Could Tighten
One of the changes we’re likely to see in 2021 is banks tightening their lending standards in light of economic uncertainty. As the unemployment figures rose, mortgage delinquency rates increased as well, compared to the same time in 2019. Paired with a gradual decrease in interest rates and an increase in home sales, banks have had good reason to become wary of loan approvals. Many have even lowered their credit limits, while looking for higher credit scores.
Stricter lending standards could make it more difficult to have your mortgage approved, which will directly impact your ability to buy a new home. This trend is likely to continue in 2021, another element to factor in when deciding to buy a house next year.