by Maurie Backman | Feb. 3, 2021
Buyers may finally be growing tired of inflated home prices.
The housing market has been remarkably strong despite the coronavirus pandemic. However, the National Association of Realtors' pending home sales index dropped 0.3% month on month in December. And that's the fourth month in a row that pending home sales have declined.
Now it is worth noting that pending sales were still up by over 21% compared to December of 2019 -- a significant jump. As such, dropping sales activity doesn't mean the housing market is heading for a slump. What it could mean, however, is that buyers are finally getting tired of paying premiums for available homes, when there's limited inventory to choose from. And if buyer demand continues to wane, it could help equalize the housing market and make it easier for more prospective homeowners to jump in.
It's easy to make the case that it's an ideal moment to buy a home. Mortgage rates are sitting near historic lows for all fixed loan products. Whether you want to pay off a home in 15, 20, or 30 years, it's a great time to sign a home loan. This holds especially true if you're a strong borrowing candidate -- meaning, you have a great credit score, a low level of existing debt, and a steady job with a high enough salary to cover your loan amount.
On the other hand, home prices have risen throughout the pandemic and are substantially higher than they were a year ago. Specifically, in December, the median existing home price was $309,800, which represents a 12.9% increase from just a year prior.
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Furthermore, housing inventory has been extremely limited during the pandemic, as many sellers held off on listing their properties. Low inventory not only drives up home prices, but also puts buyers in a situation where they may have to compromise on what they really want. That could mean settling for a home that's smaller than you need. Or perhaps buying a fixer-upper that requires lots of work when you'd rather have a newer, updated home without so many issues.
As such, you may actually want to sit tight and wait at least a few months before embarking on a home search or making offers. If things improve on the pandemic front with the rollout of vaccines, housing inventory could easily open up later this year. Once that happens, at the very least you'll have more choices. And, more inventory could drive home prices down.
At the same time, mortgage rates are likely to stay low for the rest of the year, and quite possibly beyond. Sure, they may climb a little, but they're likely to stay competitive as the U.S. economy attempts to stage a much-needed recovery.
Of course, if you find a great house at a great price now, and you qualify for an attractive rate on a mortgage loan, then there's no reason not to move forward and buy. But the fact that pending home sales have declined four months in a row could signal that prices may soon be on their way down. That's a scenario any buyer can benefit from.
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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