New Home Sales Rose 15.2% in 2020

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Home sales exploded last year. But what does this year have in store?

2020 may have been a terrible year for the U.S. economy, but the housing market really soared. Sales of new single-family homes in December were 15.2% higher than they were a year prior, according to the U.S. Census Bureau and the Department of Housing and Urban Development.

The question is: Will the housing market cool off in 2021? Or will it stay hot?

Why the housing market may calm down in 2021

The primary factor driving home sales in 2020? Competitive mortgage rates.

Rates dropped substantially over the summer and have been sitting at or near historic lows ever since. That, in turn, prompted buyers to go out and snatch up properties.

There's a good chance mortgage rates will stay low for the remainder of 2021. The Federal Reserve recently announced it won't be shifting interest rates upward. The Fed doesn't set mortgage rates, but it does influence the direction they trend in. At the same time, buyers may start to get used to low mortgage rates. Once they recognize that good deals on home loans are here to stay, they may not rush to buy homes at such a rapid clip. As such, home sale figures could drop in 2021 compared to 2020's levels.

Should you plan to buy in 2021?

Whether this year is a good time for you to buy will depend on a number of factors:

• The average home price in your target neighborhood
• The number of homes that are available for purchase
• Your personal financial picture

Home prices

Home prices soared in 2020. The median sale price of a new home sold in December came in at $355,900. If homes in your target area remain overpriced in 2021, you may want to hold off a little longer.

Number of available homes

Similarly, many sellers kept their homes off the market in 2020. If low inventory persists, you may find you're unable to find a home that meets your needs. And while you could always settle, you may want to wait until more options become available.

Your personal finances

Finally, your personal finances should play a role in whether you pursue a home purchase or not. Before you apply for a mortgage, you should have a good credit score, a low debt-to-income ratio, and a steady job. You should also, ideally, have enough money on hand to make a 20% down payment (though there are other options, like an FHA loan, that allow you to put down much less on a home purchase).

Assess your situation to see if taking on the expense of a home is a good idea in the near term. If you're at all worried about your job or are still recovering from the impact of the pandemic, you may want to wait.

Housing costs can add up

Keep in mind that buying a home means paying for more than just principal and interest on a mortgage. It also means covering property taxes, insurance, maintenance, and repairs -- costs that can really add up.

It's too early to predict how the housing market will fare this year, but so far, mortgage rates have remained competitive. If rates stay that way, 2021 could very well end up beating 2020's numbers. On the other hand, if buyers push back on inflated home prices and poor selection, sales figures could drop substantially, regardless of how mortgage rates fare.