No one was prepared for the Coronavirus outbreak and its effect on all industries, including real estate.
Now that we have turned one year since the COVID-19 crisis shut down, mortgage rates remain relatively low, but the housing inventory is lowest. With unemployment and increasing housing prices, it can be a tricky market for aspiring home buyers this year.
What to Expect in the Housing Market This Year
1. Mortgage Rates Remain Low
The COVID-19 pandemic definitely affected every industry. However, the residential real estate market continues to stay resilient. With the all-time low mortgage rates, the real estate sector could bounce back quicker than others.
Even with the recent upturn, fixed-loan product rates still sit near historic lows. As reported by Freddie Mac as of February 23, the US weekly average for a 30-year fixed-rate mortgage rate is 2.97 percent. This is 0.16 percent higher the week prior but below 0.48 percent a year ago.
The 15-year fixed mortgage sits 2.32 percent, which is 0.13 percent up the week before, but down 0.61 percent a year ago. Housing experts predict that rates will stay relatively low throughout the foreseeable future.
Whether you are considering purchasing a house or refinancing, the current rates are very enticing.
2. It Is a Seller’s Market
Even if a house just hit the market, chances are you are not the only one making an offer.
According to real estate experts, 2021 is deemed to be a seller’s market. It is a seller’s market when demand for housing surpasses the housing inventory supply. On the other hand, a buyer’s market is an instance when the exact opposite happens – inventory supply exceeds the market demand.
Though the COVID-19 outbreak initially halted the real estate market due to the low housing demand during the spring-summer of 2020, it slowly and steadily picked up just a few months after.
Since the pandemic drove organizations across various industries to adapt to a remote work policy, many people were given the freedom to reconsider their living situation. Many opted to relocate to more desirable areas or less expensive ones without sacrificing their jobs.
Families are relocating to suburban areas where square footages of houses are much wider. With everyone now needing home offices and a much bigger living room for work, studies, and even socialization, there is also a surge of first-time home buyers.
As of December 2020, the inventory of houses for sale was only 1.07 million units, a 23 percent decline year-over-year. It essentially meant that there was only 1.9-month worth of supply – way below the threshold for an equalized housing market 6 months.
Nonetheless, realtors are expecting the housing supply to ramp up in the coming months. With vaccine rollouts, home sellers would be less apprehensive, resulting in an improved supply trend this year.
3. Home Prices Are Expected to Increase
Since it is a seller’s market, hunting for a house will remain a competitive feat for home buyers this year. As of December 2020, home prices rose to 9.2 percent year-over-year. And by January 2021, it went up more than 10 percent year-over-year.
Housing prices are rising faster since 2006. In real estate markets such as San Diego, Seattle, and Phoenix, the increase is even larger. With these colossal gains, some have even reported that the housing market is overvalued by 5.5 percent.
Unless more houses are up for sale or the demand for housing decreases, prices will continue to soar high, making it difficult for first-time home buyers.
4. Digital Tools Will Greatly Be Relied On
It is not only the financial aspect that is tough when purchasing a house this year. Even the process itself is challenging given all the social distancing protocols.
Nonetheless, agents, lenders, and buyers and sellers quickly adopt digital solutions to make the whole home buying process easier while observing health regulations.
Virtual tours, smaller open houses, Zoom meetings, and e-closings are relied on to keep the whole real estate market going.
Hopefully, the successful vaccine rollouts will loosen social distancing protocols in every state, county, and city. But until then, digital tools will be greatly relied on while this pandemic lasts.
5. Is Buying a House This Year a Good Idea?
At the end of the day, the final decision whether to purchase a house this year or to withhold some more is up to you. Nonetheless, this decision greatly hinges on your financial situation.
Buying a house during the pandemic might be a good idea if you could put a check on these items:
- Income stability
- Reliable employment
- A credit score of 580 or above
- Money saved up for down payment and closing
- Moderate debt-to-income ratio (DTI).
Keep in mind that in this current economy, having a stable income and dependable employment is crucial.
Salman is a prolific environmental writer, and has authored more than 500 articles in reputed journals, magazines and websites. He is proactively engaged in creating mass awareness on renewable energy, waste management, sustainability and conservation all over the world.
Salman can be reached on salman@cleantechloops.com
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