A man wearing a medical mask while standing in front of a home and holding a For Sale sign.

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With mortgages rates sitting at record lows, many buyers have rushed to apply and get a piece of the action. But home loan applications actually decreased 1.2% for the week ending Dec. 4, reports the Mortgage Bankers Association. That's the second week in a row we've seen a decline, which could indicate that buyers are fed up with the state of the housing market.

Buyers aren't biting

While there are great deals to be had from a mortgage rate perspective, the housing market itself is a different story. Limited inventory has caused home values to skyrocket as prospective buyers duke it out and drive prices up via bidding wars. The drop in mortgage applications could mean that buyers have finally had enough, and would rather bide their time until more homes hit the market and prices come down.

Of course, that begs the question: When will that happen? There's a good chance inventory will open up as 2021 moves along, especially if there's progress in controlling the coronavirus pandemic and the nation's economic recovery begins in a meaningful way. And fortunately, mortgage rates are likely to stay competitive for quite some time, so there's no need to rush into a home purchase right now, especially when it will likely mean overpaying.

Limited housing inventory also increases buyers' likelihood of getting stuck with sub-par properties in need of extensive repairs. Waiting for inventory to open up in 2021 could help buyers avoid that fate.

Gearing up to buy in the coming year

If you're interested in applying for a mortgage, but agree that now's not the ideal time, use a delay to your advantage. First, take steps to boost your credit score if it's on the cusp of being excellent. To snag the best mortgage rates, you generally need a score in the mid-700s or above. If your score is in the lower 700s, a few smart moves -- like correcting errors on your credit report or paying down existing debt -- could help bring it up.

Next, sock away more money for a down payment. If home prices don't drop all that much in 2021, the more funds you have at your disposal, the more buying options you'll have. Plus, it's a good idea to make at least a 20% down payment on a home to avoid private mortgage insurance, or PMI, a costly premium that adds to your monthly expenses. 

It could very well be the case that mortgage applications declined recently as Americans opted to focus on the holidays or deal with the raging pandemic. But it could also be that buyers are finally pushing back and refusing to overpay for homes that were worth a lot less just a year ago. If you're interested in buying a home, keep tabs on mortgage rates, but also, on the housing market. It pays to work with a real estate agent who can track listings and let you know when more options become available in your preferred neighborhood. The more choices you have, the less likely you are to overpay and get stuck with a home that's less than ideal for you.