How to Buy a House in the 2021 Competitive Market
Despite a global pandemic in 2020, record-low interest rates and shifting demographic trends ushered in a new housing bubble. The housing market is active, with one glaring challenge: inventory. If you’re a seller, make hay while the sun is shining. But, if you’re on the hunt for a home, you’ve surely experienced the agony of defeat in this crazy, competitive environment.
Homes are selling within a few days of going on the market, sellers are “choosing” buyers from a pool of candidates, and when the dust settles from bidding wars—the amount someone will ultimately pay for a home can far exceed the asking price.
There are things you can do to position yourself for success, and it starts by understanding the market and getting your mortgage financing ducks in a row.
What does the Real Estate Market look like in 2021?
According to Realtor.com, the housing market is anticipated to grow 7 percent this year, as new homes are listed and relatively low interest rates continue to fuel buyer interest. To put this into perspective, home sales rose over twenty-five percent in October of 2020, as compared to 2019 numbers—the highest level of activity seen in the U.S. since 2006.
However, the unexpected demand last year had unanticipated consequences, as hopeful buyers outpaced the number of homes on the market. By December of last year, the number of homes listed for sale had fallen 23 percent year-over-year, the lowest market inventory since tracking began in 1983. A lull in new home construction was partially to blame,[i] but seller reticence can’t be discounted. Many Americans decided to stay put, refinance and upgrade, and the idea of finding a home after selling theirs became a daunting proposition. Inertia was in control, and the housing market at rest, stayed at rest.
All indications are, as the country returns to more “normal” living conditions by the summer of 2021, so too will the market; supply will expand and move closer to demand. In fact, realtor professionals are counting on it, optimistically anticipating that inventories will increase by year’s end.
The question remains whether an inventory expansion can stem the tide of rising home prices. Across the country, prices rose 11.2 percent from January of 2020 to the same month this year, fueled by the all-too-common bidding wars as buyers competed to gain a foothold in the market. In the four weeks ending March 21, a whopping 39 percent of homes listed were sold above asking price!
This market phenomenon is particularly tough on younger generations, who are predicted to make up more of the market this year. Older millennials are trading up to bigger homes, a move that is largely dependent on Baby Boomers and Gen Xers vacating current homes, but according to the National Association of Realtors, only 14 percent of older boomers and 18 percent of young boomers are selling, compared to the 23 percent of older millennials seeking to buy. Do the math.
What all of this means for home buyers is complicated. While mortgage rates are expected to climb only modestly throughout the year, they will likely remain low enough to entice buyers. Buyers are ready to make offers, but the inventory shortfall may not meet demand. In this homebuying game of chess, savvy purchasers know what it takes to gain an advantage when they make their next move.
4 Steps to Take Before Making an Offer on a House in 2021.
In spite of the market, it is possible to purchase a home in 2021. Buyers can be poised for success by lining up their financing first, so they are ready to act quickly when their dream home presents itself.
- Get Pre-qualified – Mortgage pre-qualification or preapproval are essential to the process as sellers entertain multiple offers. In fact, more than 65 percent of homes listed in March of 2021 sold after an ensuing bidding war between buyers. When purchasing in a competitive market like this, your bid is likely to be overlooked without a lender pre-qualification, or possibly even a full preapproval.
It’s worth noting that there is a difference between pre-qualification and preapproval, and you may encounter cases when only a valid preapproval carries weight in a heated bidding war. Pre-qualification provides the buyer with information about much home they can afford based upon criteria such as credit score and income. A preapproval is more robust. During the preapproval process, your lender will thoroughly vet your credit history and all of your documentation, to determine how much you may borrow under specific mortgage program guidelines. It’s just like it sounds, and at this stage, you’ll be truly approved for your loan when you find your home.
- Talk to a Mortgage Lender First – If you haven’t figured out the best place to start your home search, it’s with a mortgage lender and preferably one who understands the market in which you live. Home prices, job stability and other factors that determine your mortgage eligibility can be influenced by location. A local lender will have awareness of these conditions and account for them appropriately when getting you ready to go into “homebuying battle.”
- Understand the Mortgage Process – You should also understand the mortgage process to avoid inadvertent actions that could impact your ability to get financing or how much you can borrow. There are precautionary measures, which you and your mortgage loan officer can discuss before you even start your home search.
- Learn about your Mortgage Options – As home prices rise, you may feel that home ownership gets further out of reach but try not to be discouraged. There are a wide variety of government and investor programs to help specific groups of buyers, including first-time purchasers, afford a home. Again, lean on your mortgage lender to show you all available financing options and help you make decisions about those most aligned with your homebuying aspirations.
Don’t despair! Purchasing a home in 2021 may require tougher skin, but it’s not impossible. Your home is out there and when you find each other, when it’s meant to be, you will know. Having your financing lined-up to quickly act when that time comes, will give you an edge over the competition.
[i] “Realtor.com Housing 2021 Forecast.” Realtor.com, Dec. 2, 2020. Web.Read More Insights