by Maurie Backman | Jan. 31, 2021
Despite a shaky economy, the housing market boomed.
Given the way the U.S. economy basically imploded in 2020, you'd think home sales would've been sluggish. But that's far from what actually happened.
Low mortgage rates created a surge in buyer demand, and as a result, home sales in 2020 reached their highest level since 2006. Closed sales in December last year increased 0.7% from November to a seasonally-adjusted rate of 6.76 million housing units, reports the National Association of Realtors. All told, sales were 22% higher than they were in December 2019.
And now, the big question is: Will that momentum continue in 2021? Or will home sales start to slow down?
Mortgage rates are expected to stay low for the rest of the year, and possibly beyond. But they have started to creep up already. As such, mortgage application volume dropped 1.9% the second week of January.
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But even if rates continue to tick up, there's a good chance buyer demand will hold steady. Whether housing inventory can support it, however, is a different story.
As of the end of December, housing inventory stood at a 1.9-month supply with just 1.07 million homes for sale. That's the lowest number on record since 1982. If inventory doesn't open up, we may not see the same sales volume in 2021.
Furthermore, inflated home prices could cause some buyers to hold off on making offers. The median sale price for homes in December was $309,800. That marked a 12.9% increase on the year before and was the highest median price for December on record. Some people may be hesitant to stretch their housing budgets at a time when the economy is sluggish, which could also impact the market.
2021 could end up being a good time to purchase a home if inventory opens up and mortgage rates stay competitive, which is likely to happen. The big question mark, however, will be home prices. If they don't start to come down, a lot of people -- especially first-time home buyers -- may find themselves priced out of the market.
If you're hoping to buy a home this year, make sure you're a good mortgage candidate. Mortgage lenders generally look for things like strong credit, limited existing debt, income stability (meaning, having a steady job), and assets for a down payment. Make sure you can check all of these boxes. The stronger a borrower you appear, the more likely you'll be to not only get approved for a mortgage, but also snag a great rate on your loan.
At the same time, though, be honest about your budget. If you can't find a home within your price range, don't push yourself to spend more than you're comfortable with. Overextending yourself on a home could cause you to fall behind on both your bills and monthly mortgage payments. You may be better off waiting until housing inventory opens up to start putting in offers.
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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