As the pandemic stretches on, the uncertainty and stress of family and business life continue to weigh heavily on many. For some, major life decisions like changing jobs, investing money, purchasing a car and buying a home were put on the back burner in 2020 in hopes that the normalcy of life would return next year.
So with all of that to consider, is next year a good one to dive into the home-buying market? The answer will be different for everyone. Here are some factors to consider:
The pandemic hit the economy and unemployment rates hard. According to Trade Economics data, the national unemployment rate surged to 14.7 percent in April 2020, almost four times higher than the 4.4 rate in March. Over the past six months, more people have gone back to work and over time, the unemployment rate has improved. But as of October 2020, the national rate was 6.9 percent – still well above the beginning of 2020.
Despite the employment gains, some buyers might be nervous about their finances, the stability of their jobs, the continued spread of the pandemic, or the surging prices at the grocery store. Consumer confidence heading into 2021 might not be the best.
Forking out hard-earned savings for a home loan down payment, furniture for the new house and adding a new mortgage payment could still seem risky to buyers in 2021. Especially if they have to overspend to compete with other buyers who might be in a more stable financial situation.
During its 2020 annual convention, the Mortgage Bankers Association (MBA) announced that purchase originations are expected to grow 8.5 percent to a new record of $1.54 trillion in 2021. With record-low mortgage rates driving borrower demand, MBA forecasts mortgage originations to total $3.18 trillion in 2020 – the most since 2003 ($3.81 trillion).
MBA goes on to forecast mortgage rates at a modest increase next year, with the 30-year fixed-rate mortgage expected to end 2020 at 3.00 percent, before increasing to 3.30 percent.
The projected low interest rates in 2021 might be attractive to home buyers. Therefore, some will be motivated to buy just for that reason. It’s a good reason, however it’s looking like the rates might not budge much throughout 2021 and into 2022. That means that if buyers are rushing to buy just to take advantage of historically low interest rates, they don’t necessarily have to. They can show some patience and still potentially benefit. However, home inventory may not be any better in 2021 – more on that in a second.
It’s simple supply and demand. The fewer bottles of hand sanitizer available, the more people will spend to get them. It’s the same with houses – lots of buyers looking for a home means competitive offers and higher sale prices, especially with the record low home inventory like we’ve also discussed recently. Buyers need to know that.
If the low interest rates alone piqued their interest in buying a home, they might assume that translates into spending less for a more expensive home. That may or may not be true. As you know already, it hasn’t been uncommon in 2020 for homes to attract several high bids – even bids higher than the asking price. That’s great for sellers; not so much for your buyers.
It’s important for buyers to know what to expect when it gets to the point where they’ve fallen in love with a house and are ready to make an offer. Understand that unless you are prepared to deal with a little competition, you should adjust expectations.
It should also be important to buyers that they come away feeling good about their experience. The best way to do that is to come prepared. Lean on your Realtor’s® expertise, and let the strategy determined in the pre-approval process help guide your confidence. And of course, we’re always here to help!
*Not all borrowers will qualify. Contact us for more information on fees and terms. Not intended as legal, financial, or investment advice. Contact your financial representative for more information.
MBA Forecast: Purchase Originations to Increase 8.5% to Record $1.54 Trillion in 2021: Mortgage Bankers Association. (n.d.). Retrieved November 20, 2020, from https://www.mba.org/2020-press-releases/october/mba-forecast-purchase-originations-to-increase-85-to-record-154-trillion-in-2021
“United States Unemployment Rate1948-2020 Data: 2021-2022 Forecast: Calendar.” United States Unemployment Rate | 1948-2020 Data | 2021-2022 Forecast | Calendar, tradingeconomics.com/united-states/unemployment-rate.