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Buyer demand increased in 2020 as low mortgage rates made homeownership more affordable and appealing. But if you missed the boat in 2020, is 2021 a good time to buy a home? Here's why it potentially is -- and isn't -- a good idea.
The primary benefit of buying in 2021? You're likely to snag a low interest rate on your mortgage. And the lower your mortgage rate, the less you'll pay on your home loan each month.
While rates may continue to climb during the last few weeks of 2021, they're unlikely to spike in the near term. The Federal Reserve has pledged to keep interest rates low through next year, though rates may rise in 2023.
The Fed doesn't set mortgage rates, but its policies influence how mortgage rates trend. If the Fed keeps interest rates low, there's a good chance mortgage rates will stay low for at least another year, if not longer (though it's worth noting that the Mortgage Bankers Association predicts the average 30-year fixed loan will reach 4% in 2022).
Here's a play by play of what mortgage rates have looked like in 2021:
Buying a home at the wrong time is a mistake that could be with you for years. Don't rush to buy in 2021 just because mortgage rates are attractive, or you're afraid they're going to rise. We don't know what the next few years have in store for mortgages. It could well be that you'll have more success as a home buyer in 2022.
High buyer demand has driven property prices up. There are fewer sellers, so prospective buyers need to contend with higher housing prices.
As such, if you buy a home in 2021, you're likely to pay a premium. That high home price could negate a fair amount of your mortgage savings, even if you score a fairly competitive rate on your home loan.
In October, the median price of an existing home sold was $353,900, up 13.1% from a year prior, according to the National Association of Realtors. And since it's a seller's market, a lot of buyers go above the asking price just to get an offer accepted.
Another issue to consider is that housing inventory is very limited. The inventory of available homes at the end of October sat at 1.25 million units, down 12% from a year prior.
This year, there was no spring or summertime housing surge. And there was no fall boom, either. We may, however, see housing inventory rise slowly during 2022.
Mortgage rates and housing market conditions aren't the only factors to consider. Whether you should buy a home in 2021 also depends on your personal financial picture.
You're in a strong position to buy a home if you have:
You'll just need to shop around to find the best mortgage lender for you.
But if you're not in such a strong position, it could pay to postpone your home search.
Perhaps you're worried about getting laid off at work, or you don't have much money set aside for a home purchase. Or maybe you have a lot of debt, or your credit score needs work. It may make sense to wait even if home prices come down at the very end of 2021, inventory opens up, and mortgage rates remain competitive.
If you want to uncover more about the best mortgage lenders for low rates and fees, our experts have created a shortlist of the top mortgage companies. Some of our experts have even used these lenders themselves to cut their costs.
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