by Maurie Backman | Updated July 19, 2021 - First published on Jan. 10, 2021
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Mortgage rates may be low, but here's why you may not want to buy just yet.
Read the news, and you'll see that mortgage rates have been sitting at historic lows since the summer. And, in theory, that means now is a great time to purchase a home. But before you rush to apply for a mortgage or commit to buying this year, consider these reasons to wait.
In November, the median home sale price was $310,800 on a national level. For context, that's a 14.6% increase from the year prior. In fact, home sales declined late in 2020, and inflated prices could be the reason why. And unless things change with the housing market, there's a good chance home prices will remain high as 2021 goes on. That means you'll have to come up with a higher down payment (or otherwise get stuck paying private mortgage insurance), and you'll also negate some of the savings you'll reap from a low mortgage rate. That tradeoff may not be worth it.
On the other hand, if you sit tight, home prices could come down as the year goes on. And by next year, they could be back to normal.
As of late November, there was a 2.3-month supply of homes available for purchase. But to have a more neutral housing market where neither buyers or sellers have an upper hand, inventory needs to sit at more like five months' worth. Clearly, we're far off from that point, which means sellers can continue to demand high prices for properties that may not be worth it.
But that's not the only problem with low housing inventory. Limited choices mean you're more likely to get stuck buying a home that doesn't completely suit your needs. For example, if you're planning to expand your family and want a house with four bedrooms instead of three, you may not find it. Or, you could get stuck with a home that needs more updates than you'd like to pay for.
Though the U.S. unemployment rate has declined since hitting a record high last April, the economy on a whole is still in bad shape. Millions of people are still without work, and with the pandemic continuing to rage, we can't rule out the possibility of further restrictions that result in more job loss and economic distress. All of that makes it a somewhat precarious time to buy a home.
Even if you're currently employed, if the economy gets worse, your job could end up on the line. Granted, that's less likely to happen if you're in an industry that hasn't been impacted by the pandemic and is unlikely to fall victim to it, but at a time like this, it doesn't hurt to be cautious. This especially holds true if you're looking at stretching yourself financially just to buy a home at today's prices.
Given the state of the economy, there's a good chance mortgage rates will stay low throughout 2021 and beyond. And if you wait to buy, you may find that you're able to pay less for a home, have more options to choose from, and can purchase property at a time when you're not worried about your job going away.
Of course, this isn't to say that 2021 is a terrible time to buy. If your finances are in good shape and you find a home you like at a price point that's worth it to you, go for it -- especially with mortgage rates being what they are. Rather, don't pressure yourself to buy in 2021, because you may be better off delaying that home purchase another year.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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