In the market for a new home? Keep these points on your radar.
If you're looking to buy a home, you're probably aware that it's not a quick process. Rather, you'll need to research neighborhoods, figure out what home features are most important to you, and decide if you're buying at a good time or not. With that in mind, here are a few current trends to think about if you're interested in buying a home in May.
1. Mortgage rates are up, but still competitive
On Jan. 1, the average interest rate for a 30-year mortgage was 2.765%. As of this writing, the average rate for that same loan is 3.196%.
It's been many weeks since the average rate for a 30-year fixed loan fell below 3%, and chances are, rates under 3% may be a thing of the past as the U.S. economy works toward recovery. But while today's mortgage rates are no longer sitting at historic lows, they're still pretty competitive.
In fact, if you're taking out a $200,000 mortgage, the difference between a 2.765% interest rate and a 3.196% interest rate is an extra $46 a month in principal and interest. That's certainly not pocket change. But that extra cost shouldn't necessarily stop you from buying a house -- especially since we don't know if rates will continue to climb this year.
2. Homes are expensive
Relatively low mortgage rates and limited inventory are driving home prices up. In March, the median listing price across the U.S. was $370,000, up 15.6% compared to last year. Plus, because there's so much competition, many homes that hit the market today are subject to bidding wars, which tend to drive prices up even more.
If you're going to buy a home today, expect to pay a premium for it. And if you're buying a home you don't plan to keep very long, understand that your home's value may decline over the next few years, so you may wind up selling it at a loss.
3. Housing inventory is limited
In March, the inventory of homes for sale decreased by a whopping 52% compared to the previous year. This resulted in there being 534,000 fewer homes for sale last month. This lack of inventory, as mentioned, is helping drive up home prices. It could also make it more difficult for you to find a home within your budget.
Even if you do manage to find a home with a purchase price you can swing, you may need to compromise on other factors, like layout or condition. For example, you may not get the open floor plan that more modern homes tend to have because there may only be a handful of older homes for sale where you want to buy. Or you may get stuck with a home that needs a lot of renovations.
Housing inventory does typically open up in the spring, but this year may be an exception given the ongoing pandemic and economic crisis. If you find that it's difficult to find a home that suits your needs, you may want to hold off on buying in May and wait until June or July instead.
Understanding the state of the market is an important step on the road to homeownership. Keep these trends in mind as you navigate your choices.
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