New Home Sales Rose 15.2% in 2020
by Maurie Backman | Feb. 2, 2021
The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation.
Image source: Getty Images
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.
Get $150 off closing costs with Better.com Mortgage
This is one of the top lenders we've used personally to secure big savings. No commissions, no origination fee, low rates. Get a loan estimate instantly and $150 off closing costs.
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.
A historic opportunity to potentially save thousands on your mortgage
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.
Our expert recommends this company to find a low rate - and in fact he used them himself to refi (twice!). Click here to learn more and see your rate. While it doesn't influence our opinions of products, we do receive compensation from partners whose offers appear here. We're on your side, always. See our full advertiser disclosure here.
About the Author
Maurie Backman is a personal finance writer who covers everything from savings to retirement to healthcare. Her articles have appeared broadly on major outlets such as CNBC, MSN, and Yahoo.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
